FORM 10-K -...

FORM 10-KBRADY CORP - BRCExhibit: �

Filed: September 28, 2007 (period: July 31, 2007)

Annual report which provides a comprehensive overview of the company for the past year

Table of Contents

PART I

Item 1. Business I-1 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matt

PART I

Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II

Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and IssuerPurchases of E

Item 6. Selected Financial Data Item 7. Management s Discussion and Analysis of Financial Condition and Results of

Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure

Item 9A. Controls and Procedures Item 9B. Other Information PART III

Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matt

Item 13. Certain Relationships and Related Transactions Item 14. Principal Accounting Fees and Services PART IV

Item 15. Exhibits and Financial Statement Schedules SIGNATURES

EX-10.18 (COMPLETE AND PERMANENT RELEASE AND RETIREMENTAGREEMENT)

EX-21 (SUBSIDIARIES)

EX-23 (CONSENT OF DELOITTE TOUCHE LLP)

EX-31.1 (CERTIFICATION)

EX-31.2 (CERTIFICATION)

EX-32.1 (SECTION 1350 CERTIFICATION)

EX-32.2 (SECTION 1350 CERTIFICATION)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2007OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-14959

BRADY CORPORATION(Exact name of registrant as specified in charter)

Wisconsin(State or other jurisdiction of

incorporation or organization)

39-0178960(IRS Employer Identification No.)

6555 West Good Hope Road,Milwaukee, WI 53223

(Address of principal executive offices) (Zip Code)

(414) 358-6600(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Titleof

eachclass

Nameof

eachexchange

onwhich

registeredClass A Nonvoting Common Stock, Par Value

$.01 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o No þ

Source: BRADY CORP, 10-K, September 28, 2007

The aggregate market value of the non-voting common stock held by non-affiliates of the registrant as ofJanuary 31, 2007, was approximately $1,762,270,644 (based on closing sale price of $37.45 per share on that date asreported for the New York Stock Exchange). As of September 24, 2007, there were outstanding 50,830,420 shares ofClass A Nonvoting Common Stock (the “Class A Common Stock”), and 3,538,628 shares of Class B Common Stock.The Class B Common Stock, all of which is held by affiliates of the registrant, is the only voting stock.


Table of Contents

INDEX

Page

PART IItem 1. Business I-1 General Development of Business I-1 Financial Information About Industry Segments I-1 Narrative Description of Business I-1 Overview I-1 Competitive Strengths I-2 Key Strategies I-3 Products I-4 Marketing and Sales I-6 Brands I-6 Manufacturing Process and Raw Materials I-6 Technology and Product Development I-7 International Operations I-7 Competition I-8 Backlog I-8 Environment I-8 Employees I-8 Acquisitions I-8

Financial Information About Foreign and Domestic Operations and ExportSales I-8

Information Available on the Internet I-8Item 1A. Risk Factors I-9Item 1B. Unresolved Staff Comments I-12Item 2. Properties I-12Item 3. Legal Proceedings I-12Item 4. Submission of Matters to a Vote of Security Holders I-12

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities II-1

Item 6. Selected Financial Data II-3Item 7.

Management’s Discussion and Analysis of Financial Condition and Results ofOperations II-4

Item 7A. Quantitative and Qualitative Disclosures About Market Risk II-14Item 8. Financial Statements and Supplementary Data II-15Item 9.

Changes In and Disagreements With Accountants on Accounting andFinancial Disclosure II-50

Item 9A. Controls and Procedures II-50Item 9B. Other Information II-52

PART III

Item 10. Directors and Executive Officers of the Registrant III-1Item 11. Executive Compensation III-5 Compensation Discussion and Analysis III-5 Compensation Committee Interlocks and Insider Participation III-10 Compensation Committee Report III-10 Summary Compensation Table III-11


Table of Contents

Page

Grants of Plan-Based Awards for 2007 III-12 Outstanding Equity Awards at 2007 Fiscal Year End III-13 Option Exercises and Stock Vested for Fiscal 2007 III-14 Non-Qualified Deferred Compensation for Fiscal 2007 III-14 Potential Payments Upon Termination or Change in Control III-14 Compensation of Directors III-16 Director Compensation Table III-17Item 12.

Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters III-18

Item 13. Certain Relationships and Related Transactions III-20Item 14. Principal Accounting Fees and Services III-21

PART IV

Item 15. Exhibits, Financial Statement Schedules IV-1Signatures IV-5 Complete and Permanent Release and Retirement Agreement Subsidiaries Consent of Deloitte & Touche LLP Certification Certification Section 1350 Certification Section 1350 Certification


Table of Contents

PART I

Brady Corporation and Subsidiaries are referred to herein as the “Company,” “Brady,” or “we”.

Item 1. Business

(a) General Development of Business

The Company, a Wisconsin corporation founded in 1914, currently operates 61 manufacturing ordistribution facilities in Australia, Belgium, Brazil, Canada, China, Denmark, France, Germany, India, Italy,Japan, South Korea, Malaysia, Mexico, the Netherlands, Norway, Singapore, Slovakia, Sweden, Thailand, theUnited Kingdom and the United States. The Company also sells through subsidiaries or sales offices in thesecountries, with additional sales through a dedicated team of international sales representatives in Hong Kong,the Philippines, Spain, Taiwan, Turkey and the United Arab Emirates. The Company further markets itsproducts to parts of Eastern Europe, the Middle East, Africa and Russia. The Company’s corporateheadquarters are located at 6555 West Good Hope Road, Milwaukee, Wisconsin 53223, and the telephonenumber is (414) 358-6600. The Company’s Internet address is http://www.bradycorp.com.

(b) Financial Information About Industry Segments

The information required by this Item is provided in Note 7 of the Notes to Consolidated FinancialStatements contained in Item 8 — Financial Statements and Supplementary Data.

(c) Narrative Description of Business

Overview

Brady Corporation is an international manufacturer and marketer of identification solutions and specialtyproducts which identify and protect premises, products and people. Brady’s core capabilities inmanufacturing, channel management, printing systems, precision engineering and materials expertise make ita leading supplier to the Maintenance, Repair and Operations (“MRO”) market and to the Original EquipmentManufacturing (“OEM”) market. The Company’s ability to provide customers with a broad range ofdifferentiated solutions both through the organic development of its existing business and the acquisition ofcomplementary and adjacent businesses, its commitment to quality and service, its global footprint and itsdiversified sales channels have made it a world leader in its markets.

Brady manufactures and markets a wide range of products for use in diverse applications. Major productlines provided to the MRO market include facility identification, safety and complementary products, wireand cable identification products, sorbent materials, people identification products and regulatory publishing.Major product lines provided to the OEM market include high-performance identification products forproduct identification, wire identification, work in process identification, bar code labels and precision die-cutcomponents for mobile telecommunications devices, hard disk drives, medical devices and supplies,automotive electronics and other electronics. Products are marketed through multiple channels, includingthrough distributors, business-to-business direct marketing and a direct sales force.

The need for the Company’s products is driven, in part, by customer specifications, by regulatorycompliance requirements imposed by agencies such as the Occupational Safety & Health Administration(“OSHA”) and the Environmental Protection Agency (“EPA”) in the United States and other regulatoryagencies around the world, and by the need to identify and track assets or to identify, direct, warn, inform,train and protect people or products. Brady serves customers in general manufacturing, maintenance andsafety, process industries, construction, electrical, telecommunications, electronics, laboratory/healthcare,airline/transportation, security/brand education, governmental, public utility, and a variety of other industries.The Company has a broad customer base, with the largest customer representing approximately 5% of netsales.

I-1


Table of Contents

Competitive Strengths

Brady’s vision is to be either first or second in terms of market share in every market served. TheCompany’s primary growth objectives are to build upon its leading market positions, to improve performanceand profitability and to expand existing activities through a multi-prong approach that incorporates organicgrowth, new product development and acquisitions.

The Company believes the following competitive strengths will allow it to achieve its strategy:

Leader in Niche Markets. Brady competes in niche markets where it believes it is often the leadingsupplier with the manufacturing expertise, infrastructure, channels and sales resources necessary to providethe required product or comprehensive solution. For example, the Company believes it is the leading supplierof wire identification products to the North American MRO market and of precision die-cut components tothe mobile telecommunications market. The Company believes its leadership positions make it a preferredsupplier to many of its customers and enables it to be successful in its markets, which are generallyfragmented and populated with smaller or regional competitors.

Differentiated Solutions and Commitment to Innovation. The Company believes its sophisticatedengineering and manufacturing capabilities, as well as its expertise in materials, give it a competitiveadvantage in supplying customized or high specification product solutions to meet individualized customerneeds. The Company has been successful in identifying and incorporating innovative technologies to createintegrated and precise solutions. Additionally, it is able to use its materials expertise and its investment inresearch and development to provide unique products to meet the demands of end-customers in new, fastergrowing markets adjacent to its traditional markets, such as laboratory identification. Brady’s commitment toproduct innovation is reflected in its research and development efforts that include approximately250 employees primarily dedicated to research and development activities mainly in the United States, butalso in Belgium, Germany, Singapore, Sweden and South Korea.

Operational Excellence. Brady has achieved continuous improvement in operational productivity. Itemploys well-developed problem solving techniques and invests in state-of-the-art equipment to captureefficiencies. The Company is largely vertically integrated and designs, manufactures and markets a majorityof the products it sells. The Company has invested heavily over the last several years to centralize its NorthAmerican distribution network and to standardize its Systems, Applications, and Products for data processing(“SAP”) software applications. It has consistently generated positive cash flow from operations by continuallyreducing costs and optimizing inventory management and the efficiency of its manufacturing operations.

Broad Customer Base and Geographic Diversity. Brady believes its global infrastructure and diversemarket presence mitigates the impact of an economic downturn on its business in any particular country orregion, enables it to act as a primary supplier to many of its global customers and provides a solid platformfor further expansion. Sales from international operations increased from 44.4% of net sales in fiscal 2000 to60.9% of net sales in fiscal 2007. The Company’s global presence benefits many of its customers who seek asingle or primary supplier to meet their global design and manufacturing requirements. Brady has over500,000 end-customers that operate in multiple industries.

Disciplined Acquisition and Integration Strategy. The Company has a dedicated team of experiencedprofessionals that employ a disciplined acquisition strategy and process to acquire companies. It applies strictfinancial standards to evaluate all acquisitions using an expected return model based on a modified return oninvested capital calculation. It also conducts disciplined integration reviews of acquired firms to trackprogress toward results expected at the time of acquisition. Since 1996, the Company has acquired andintegrated 51 companies to primarily increase market share in existing and new geographies. It has acquiredcompanies that expand the product range it offers both existing and new customers, as well as adding newtechnological capabilities.

Channel Diversity and Strength. Brady utilizes a wide range of channels to reach customers across abroad array of industries. It employs direct marketing expertise to meet its customers’ need for convenience.The Company also has long-standing relationships with, and is a preferred supplier to, many of its largestdistributors. In addition, the Company employs a global sales team to support both distributors and end usersand to serve their productivity, tracking and safety requirements. The Company believes its strong brands andreputation for quality,

I-2


Table of Contents

innovation and on-time delivery contribute to the popularity of its products with distributors, OEMs, resellersand other customers.

Deep and Talented Team. The Company believes that its team of employees has substantial depth incritical operational areas and has demonstrated success in reducing costs, integrating acquisitions andimproving processes through economic cycles. The international experience of its management team and itscommitment to developing strong management teams in each of the local operations is a competitiveadvantage. In addition, the Company believes it employs a world-class team of people and dedicatessignificant resources to recruiting people committed to excellence and investing in their potential. The depthand breadth of knowledge within the entire Brady organization strengthens relationships with its customersand suppliers and enables the Company to provide its customers with a high level of product and industryexpertise.

Key Strategies

The Company’s primary growth objectives are to build upon its leading market positions, to improve itsperformance and profitability and to expand its existing activities through a multi-prong strategic approachthat incorporates both organic growth and acquisitions. The Company’s key strategies include:

Capitalize on Growing Niche Markets. The Company seeks to leverage its premier reputation, globalfootprint and strength in manufacturing and materials expertise to capitalize on growth in existing nichemarkets. Growth prospects in the MRO market are driven primarily by the general health of regionaleconomies, changes in legal and regulatory compliance requirements and the increased need of customers toidentify their assets and protect their employees. Demand for OEM products is primarily driven by thestrength of various electronics markets, such as mobile telecommunications, portable electronic devices, diskdrives and computers, as well as technological advances in these markets and other industrial OEM’s.

Increase Market Share. Many Brady markets are fragmented and populated with smaller or regionalcompetitors. The Company seeks to leverage its investment in new product development and its global sales,operations and distribution capabilities to increase market share, as well as expand its distribution channels tocapture new customers. The Company employs a dedicated and experienced sales team that works closelywith existing customers to identify and capture new opportunities. In addition, Brady plans to leverage thestrength of its brands, the quality of its products and its long-standing relationships with key customers tobuild upon current market positions.

Enter New Markets. The Company looks to leverage its quality products, global infrastructure, channelrelationships and selling capabilities to effectively enter new markets, many of which are fragmented andpopulated with smaller competitors. For example, Brady is expanding its precision die-cut capabilities intothe medical market and is leveraging its common distribution networks into the sorbent materials market.Through product innovation and development activities, Brady seeks to introduce new technologies anddifferentiated products as well as seek additional applications for products in existing and new markets. TheCompany reviews its product and market portfolio on a regular basis through its standardized review processin order to identify new product opportunities.

Expand Geographically. Brady’s long-term strategy involves the pursuit of growth opportunities in anumber of markets outside of the United States. The Company is committed to being in close proximity to itscustomers and to low-cost manufacturing. Brady currently operates in 28 countries and employsapproximately 3,900 people, approximately 45% of its total workforce, in developing regions. Brady hasmade strategic acquisitions and has invested heavily in its global infrastructure and flexible manufacturingcapacity in order to follow its customers into new geographies. Brady’s regional management structure is akey component in effectively entering and competing in new geographies.

Pursue Strategic Acquisitions. The Company intends to continue to make complementary strategicacquisitions to further its goal of strengthening its market positions and entering new markets andgeographies. Brady works to drive substantial value creation through capitalizing on its acquisition andintegration acumen.

Improve Profitability. The Company plans to continue its focus on improving operating efficiency,reducing costs, and improving productivity and return on assets. In addition, each acquisition the Companymakes provides

I-3


Table of Contents

additional opportunities to improve its performance as well as the performance of the acquired company. TheCompany often continues to realize synergies with acquired companies several years after the acquisitiondate.

Products

The Company is largely vertically integrated by designing, developing, coating and producing most of itsidentification signs, labels and printing systems. Brady materials are developed internally and manufacturedout of a variety of films, predominantly coated by Brady, for applications in the following markets: electronic,industrial, electrical, utility, laboratory, safety and security. Brady also manufactures specialty tapes andrelated products that are characterized by high-performance printable top coats and adhesives, most of whichare formulated by the Company, to meet high-tolerance requirements of the industries in which they are used.

The Company’s stock and custom products consist of over 500,000 stock-keeping units, includingcomplete identification systems and other products used to create a safer work environment, improveoperating efficiencies, and increase the utilization of assets through tracking and inventory process controls.Major product categories include: facility and safety signs and identification tags and markers, pipe and valvemarkers, asset identification tags, lockout/tagout products, security and traffic control products, and printingsystems and software for creating safety and regulatory labels and signs, spill control and clean up products,wire and cable markers, high-performance labels, laboratory identification labels and printing systems,stand-alone printing systems, bar-code and other software, automatic identification and data collectionsystems, personal identification products, and precision die-cut solutions.

Some of the Company’s stock products were originally designed, developed and manufactured as customproducts for a specific customer. However, such products have frequently created wide industry acceptanceand have become stock items offered by the Company through mail order and distributor sales. TheCompany’s most significant types of products are described below.

MRO Market Products

• Facility Identification

Informational signs and printers for use in a broad range of industrial, commercial, governmental andinstitutional applications. These signs are either self-adhesive or mechanically mounted, designed for bothindoor and outdoor use and are manufactured to meet standards issued by the National Safety Council, OSHAand a variety of industry associations in the United States and abroad. The Company’s sign products includeadmittance, directional and exit signs; electrical hazard warnings; energy conservation messages; fireprotection and fire equipment signs; hazardous waste labels; hazardous and toxic material warning signs;transformers and power pole markers; personal hazard warnings; housekeeping and operational warnings;pictograms; radiation and laser signs; safety practices signs and regulatory markings; employment lawposters; and photo luminescent (glow-in-the-dark) tapes.

Warehouse identification products including self-adhesive and self-aligning die-cut numbers and letters,labels, and tags used to locate and identify inventory in storage facilities such as warehouses, factories,stockrooms and other industrial facilities.

Pipe markers and valve tags including plastic or metal, self-adhesive or mechanically applied, stock orcustom-designed pieces for the identification of pipes and control valves in the mechanical contractor andprocess industry markets. These products are designed to help identify and provide information as to thecontents, direction of flow and special hazardous properties of materials contained in piping systems, and tofacilitate repair or maintenance of the systems.

Asset-identification products that are an important part of an effective asset-management program in awide variety of markets. These include self-adhesive or mechanically mounted labels or tags made ofaluminum, brass, stainless steel, polycarbonate, vinyl, polyester, mylar and paper. These products are alsooffered in tamper-evident varieties, and can be custom designed to ensure brand protection fromcounterfeiting.

I-4


Table of Contents

• Safety and Complementary Products

Lockout/tagout products — under OSHA regulations, all energy sources must be “locked out” whilemachines are being serviced or maintained to prevent accidental engagement and injury. The Company’sproducts allow its customers to comply with these regulations and to ensure worker safety for a wide varietyof energy- and fluid-transmission systems and operating machinery.

Security and traffic control products including a variety of security seals, parking permits and wristbandsdesigned for visitor control in financial, governmental, educational and commercial facilities includingmeeting and convention sites. The Company also offers a wide variety of traffic control devices includingtraffic signs, directional and warning signs, parking tags and permits, barriers, cones and other productsincluding barricading, visual warning systems, floor-marking products, safety badges, and first aidcabinets/kits, among others.

Spill control and clean-up products including synthetic sorbent materials in a variety of shapes, sizes andconfigurations; spill kits, containment booms, industrial rugs, absorbing pillows and pads, barrier spillmatting and granular absorbents; and other products for absorbing and controlling chemical, oil-based andwater-based spills.

• Wire and Cable Identification

Brady manufactures a broad range of wire and cable-marking products, including labels, sleeves,software that allows customers to create their own labels, and printers to print and apply them. These productsmark and identify wires, cables and their termination points to facilitate manufacturing, construction, repair ormaintenance of equipment, and data communication and electrical wiring systems used in virtually everyindustrial, power and communication market.

• People Identification

Identification systems and products including photo ID card systems that combine biometrics, digitalimaging and other technologies to positively identify people; self-expiring name tags that make use ofmigratory ink technology which, upon activation, starts a timed process resulting in an altered message, coloror design to indicate expiration; and ID accessories including lanyards, badge holders, badge reels andattachments, as well as photo identification kits.

OEM Market Products

• High Performance Identification

Brady produces a complete line of label materials and printing systems to meet customers’ needs foridentification requirements for product identification, work in process labeling and bar coding that performunder harsh or demanding conditions, such as extreme temperatures, or environmental or chemical exposure.Brady prints stock and custom labels and also sells unprinted materials to enable customers to print their ownlabels.

• Precision Die-Cut Parts

The Company develops customized precision die-cut products that are used to seal, insulate, protect,shield or provide other mechanical performance properties in the assembly of electronic, telecommunicationsand other equipment, including mobile phones, personal data assistants, computer hard disk drives, computersand other devices. Solutions not only include the materials and converting, but also automatic placement andother value-added services. The Company also provides converting services to the medical market formaterials used in in-vitro diagnostic kits and patient monitoring.

• Wire Identification

The Company produces a variety of high performance products used to mark wires, wire bundles andcables in the manufacturing of a variety of industrial, electrical and electronic equipment.

I-5


Table of Contents

Other Products

The Company also designs and produces software for barcoding and inspection automation, industrialthermal-transfer printers and other electromechanical devices to serve the growing and specialized needs ofcustomers in a wide variety of markets. Industrial labeling systems, software, tapes, ribbons and label stocksprovide customers with the resources and flexibility to produce signs and labels on demand at their site. TheCompany also offers poster printers, cutting systems, laminators and supplies to education and trainingmarkets.

Marketing and Sales

Brady seeks to offer high quality products with rapid response and superior service so that it can providesolutions to customers that are better, faster and more economical than those available from the Company’scompetitors. The Company markets and sells its products domestically and internationally through multiplechannels including distributors, direct sales, mail-order-catalog marketing, retail, and electronic accessthrough the Internet. The Company has long-standing relationships with a broad range of electrical, safety,industrial and other domestic and international distributors. The Company’s sales force seeks to establish andfoster ongoing relationships with the end-users and distributors by providing technical application andproduct expertise.

The Company also direct markets certain products and those of other manufacturers by catalog sales andoutbound telemarketing in both domestic and international markets. Such products include industrial andfacility identification products, safety and regulatory-compliance products and original equipmentmanufacturer component products, among others. Catalogs are distributed in the United States, Australia,Brazil, Canada, China, France, Germany, Italy, Spain, Sweden, Switzerland and the United Kingdom, andinclude foreign-language catalogs.

The Company’s products are sold in a wide variety of markets within the larger MRO and OEM markets,including electrical, electronic, telecommunications, governmental, public utility, commercial building,computers and computer components, construction, general manufacturing, laboratory, transportationequipment and education.

Brands

The Company’s products go to market under a variety of brand names. The Brady brand includeshigh-performance labels, printers, software, safety and facility identification products, lock-out/tag-outproducts, and precision die-cut parts and specialty materials. Other die-cut materials are marketed asBalkhausen or Tradex Converting products. Safety and facility identification products are also marketedunder the Safety Signs Service brand and the Asterisco brand, with some lockout/tagout products offeredunder the Prinzing and LOTO brands. In addition, identification for the utility industry is marketed under theElectromark brand and spill-control products are marketed under the SPC brand; poster printers and cuttingsystems for education and government markets are offered under the Varitronics name brand; wireidentification products are marketed under the Modernotecnica brand and the Carroll brand; direct marketingsafety and facility identification products are offered under the Seton, Emedco, Signals, Safetyshop, Clementand Personnel Concepts names; security and identification badges and systems are included in the Temtec,B.I.G., Identicard/Identicam, STOPware, J.A.M. Plastics, PromoVision, and Quo-Luck brands; hand-heldregulatory documentation systems are available under the Tiscor name; and automatic identification and barcode software is offered under the Teklynx brand.

Manufacturing Process and Raw Materials

The Company manufactures the majority of the products it sells, while purchasing certain items fromother manufacturers. Products manufactured by the Company generally require a high degree of precision andthe application of adhesives with chemical and physical properties suited for specific uses. The Company’smanufacturing processes include compounding, coating, converting, melt-blown operations, softwaredevelopment and printer design and assembly. The compounding process involves the mixing of chemicalbatches for primers, top coatings and adhesives. The coatings and adhesives are applied to a wide variety ofmaterials including polyester, polyimide, cloth, paper, metal and metal foil. The converting process mayinclude embossing, perforating, laminating, die cutting, slitting, and printing or marking the materials asrequired.

I-6


Table of Contents

The Company produces the majority of the pressure sensitive materials through an integratedmanufacturing process. These integrated manufacturing processes permit greater flexibility to meet customerneeds in product design and manufacture, and an improved ability to provide specialized products designed tomeet the needs of specific applications. Brady’s “cellular” manufacturing processes and “just-in-time”inventory control are designed to attain profitability in small orders by emphasizing flexibility and themaximization of assets through quick turnaround and delivery, balanced with optimization of lot sizes. Mostof the Company’s manufacturing facilities have received ISO 9001 or 9002 certification.

The materials used in the products manufactured by the Company consist primarily of plastic sheets andfilms, paper, metal and metal foil, cloth, fiberglass, polypropylene, inks, dyes, adhesives, pigments, naturaland synthetic rubber, organic chemicals, polymers, solvents and electronic components and subassemblies. Inaddition, the Company purchases finished products for resale. The Company purchases raw materials,components and finished products from many suppliers. Overall, the Company is not dependent upon anysingle supplier for its most critical base materials or components; however the Company has chosen in certainsituations to sole source materials, components or finished items for design or cost reasons. As a result,disruptions in supply could have an impact on results for a period of time, but generally these disruptionswould simply require qualification of new suppliers and the disruption would be modest. In certain instances,the qualification process could be more costly or take a longer period of time and in rare circumstances, suchas a global shortage of a critical material or component, the financial impact could be significant.

Technology and Product Development

The Company focuses its research and development efforts on material development, printing systemsdesign and software development. Material development involves the application of surface chemistryconcepts for top coatings and adhesives applied to a variety of base materials. Systems design integratesmaterials, embedded software and a variety of printing technologies to form a complete solution for customerapplications or the Company’s own production requirements. The Company’s research and development teamalso supports production and marketing efforts by providing application and technical expertise.

The Company possesses patents covering various aspects of adhesive chemistry, electronic circuitry,printing systems for wire markers, systems for aligning letters and patterns, and visually changing paper.Although the Company believes that its patents are a significant factor in maintaining market position forcertain products, technology in the areas covered by many of the patents is evolving rapidly and may limit thevalue of such patents. The Company’s business is not dependent on any single patent or group of patents.

The Company conducts much of its research and development activities at the Frederic S. TobeyResearch and Innovation Center (approximately 39,600 sq. ft.) in Milwaukee, Wisconsin. The Company spentapproximately $36.0 million, $30.4 million, and $25.1 million during the fiscal years ended July 31, 2007,2006, and 2005, respectively, on its research and development activities. In fiscal 2007, approximately250 employees were engaged in research and development activities for the Company. Additional researchprojects were conducted in Company facilities in other locations in the United States, Europe and Asia andunder contract with universities, other institutions and consultants.

The Company’s name and its registered trademarks are important to each of its business segments. Inaddition, the Company owns other important trademarks applicable to only certain of its products.

International Operations

In fiscal 2007, 2006, and 2005, sales from international operations accounted for 60.9%, 57.6%, and55.3%, respectively, of the Company’s sales. Its global infrastructure includes subsidiaries in Australia,Belgium, Brazil, Canada, China, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Luxembourg,Malaysia, Mexico, the Netherlands, Norway, Philippines, Poland, Singapore, Slovakia, South Korea, Spain,Sweden, Thailand, Turkey and the United Kingdom. Most of these locations manufacture or have thecapability to manufacture certain of the products they sell. In addition, Brady has sales offices in Spain,Taiwan, Turkey and the United Arab Emirates. Brady further markets its products to parts of Eastern Europe,the Middle East, Africa and Russia.

I-7


Table of Contents

Competition

The markets for all of the Company’s products are competitive. Brady believes that it is one of theleading domestic producers of wire markers, safety signs, pipe markers, label printing systems, precisiondie-cut materials and bar-code-label-generating software. Brady competes for business principally on thebasis of production capabilities, engineering, and research and development capabilities, materials expertise,its global footprint, global account management where needed, customer service and price. Product quality isdetermined by factors such as suitability of component materials for various applications, adhesive properties,graphics quality, durability, product consistency and workmanship. Competition in many of its productmarkets is highly fragmented, ranging from smaller companies offering only one or a few types of products,to some of the world’s major adhesive and electrical product companies offering some competing products aspart of their overall product lines. A number of Brady’s competitors are larger than the Company and havegreater resources. Notwithstanding the resources of these competitors, management believes that Bradyprovides a broader range of identification solutions than any of them, and that its global infrastructure is asignificant competitive advantage in serving large multi-national customers.

Backlog

As of July 31, 2007, the amount of the Company’s backlog orders believed to be firm was $25.3 million.This compares with $42.3 million and $24.9 million of backlog orders as of July 31, 2006 and 2005,respectively. Average delivery time for the Company’s orders varies from one day to one month, dependingon the type of product, and whether the product is stock or custom-designed and manufactured. Averagedelivery time for the direct marketing business can be as low as the same day or the next day. The Company’sbacklog does not provide much visibility for future business.

Environment

At present, the manufacturing processes for our adhesive-based products utilize certain evaporativesolvents, which, unless controlled, would be vented into the atmosphere. Emissions of these substances areregulated at the federal, state and local levels. We have implemented a number of systems and procedures toreduce atmospheric emissions and/or to recover solvents. Management believes we are substantially incompliance with all environmental regulations.

Employees

As of July 31, 2007, the Company employed approximately 8,600 individuals. We have neverexperienced a material work stoppage due to a labor dispute and consider our relations with employees to bestrong. The mix of employees is changing as we employ more people in developing countries where wagerates are lower and employee turnover tends to be higher than in developed countries.

Acquisitions

Information about the Company’s acquisitions is provided in Note 2 of the Notes to ConsolidatedFinancial Statements contained in Item 8 — Financial Statements and Supplementary Data.

(d) Financial Information About Foreign and Domestic Operations and Export Sales


(e) Information Available on the Internet

The Company’s Corporate Internet address is http://www.bradycorp.com. The Company makes available,free of charge, on or through its Internet website copies of its Annual Report on Form 10-K, QuarterlyReports on Form 10-Q, Current Reports on Form 8-K, Section 16 reports filed by the Company’s insiders,and amendments to all such reports as soon as reasonably practicable after such reports are electronically filedwith or furnished to the SEC. We are not including the information contained on or available through ourwebsite as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

I-8


Table of Contents

Item 1A. Risk Factors

Before making an investment decision with respect to our stock, you should carefully consider the risksset forth below and all other information contained in this report. If any of the events contemplated by thefollowing risks actually occur, then our business, financial condition or results of operations could bematerially adversely affected.

Market demand for our products may be susceptible to fluctuations in the economy that may causevolatility in our results of operations.

Sales of our products may be susceptible to changes in general economic conditions, namely generaldownturns in the regional economies in which we compete. Our business in the MRO market tends to varywith the nominal GDP of the local economies in which we manufacture and sell. As a result, in periods ofeconomic contraction, our business may not grow or may decline. In the OEM market, we may be adverselyaffected by reduced demand for our products due to downturns in the global economy as this is a morevolatile business than the MRO business. This can result in higher degrees of volatility in our net sales andresults of operations. These more volatile markets include, but are not limited to, mobile telecommunicationdevices, hard disk drives and electronics in personal computers and other electronic devices.

Our current and future success could be impacted by our ability to effectively integrate acquiredcompanies and manage our growth.

Our growth has and will continue to place significant demands on our management and operational andfinancial resources. Since the beginning of fiscal year 2004, we have acquired 26 companies. These recentand future acquisitions will require integration of sales and marketing, information technology, finance andadministrative operations and information of the newly acquired business. The successful integration ofacquisitions will require substantial attention from our management and the management of the acquiredbusinesses, which could decrease the time they have to serve and attract customers. We cannot assure that wewill be able to successfully integrate these recent or any future acquisitions, that these acquisitions willoperate profitably or that we will be able to achieve the financial or operational success expected from theacquisitions. Our financial condition, cash flows and operational results could be adversely affected if we donot successfully integrate the newly acquired businesses or if our other businesses suffer on account of ourincreased focus on the newly acquired businesses.

If we fail to develop new products or our customers do not accept the new products we develop, ourbusiness could be affected adversely.

Development of proprietary products is key to the success of our core growth and our high gross marginsnow and in the future. Therefore, we must continue to develop new and innovative products and acquire andretain the necessary intellectual property rights in these products on an ongoing basis. If we fail to makeinnovations, or the market does not accept our new products, then our financial condition and results ofoperations could be adversely affected. We continue to invest in the development and marketing of newproducts. These expenditures do not always result in products that will be accepted by the market. Failure todevelop successful new products may also cause our customers to buy from a competitor or may cause us tolower our prices in order to compete. This could have an adverse impact on our profitability.

We may be adversely impacted by an inability to identify and complete acquisitions.

A large part of our growth since fiscal 2003 has come through acquisitions and a key component of ourgrowth strategy is based upon acquisitions. We may not be able to identify acquisition targets or successfullycomplete acquisitions in the future due to the absence of quality companies, economic conditions, or priceexpectations from sellers. If we are unable to complete additional acquisitions, our growth may be limited.

I-9


Table of Contents

We operate in competitive markets and may be forced to cut our prices or incur additional costs toremain competitive, which may have a negative impact on our profitability.

We face substantial competition, particularly in the OEM markets we serve. Competition may force us tocut our prices or incur additional costs to remain competitive. We compete on the basis of productioncapabilities, engineering and R&D capabilities, materials expertise, our global footprint, customer service andprice. Present or future competitors may have greater financial, technical or other resources, lower productioncosts or other pricing advantages, any of which could put us at a disadvantage in the affected business bythreatening our market share in some markets or reducing our profit margins.

Our goodwill or other intangible assets may become impaired, which may negatively impact our resultsof operations.

We have a substantial amount of goodwill and other intangible assets on our balance sheet as a result ofour acquisitions. As of July 31, 2007, we had $737.5 million of goodwill on our balance sheet, representingthe excess of the total purchase price for our acquisitions over the fair value of the net assets we acquired, and$149.8 million of other intangible assets, primarily representing the fair value of the customer relationships,patents and trademarks we acquired in our acquisitions. At July 31, 2007, goodwill and other intangible assetsrepresented approximately 52% of our total assets. We evaluate this goodwill annually for impairment basedon the fair value of each operating segment. We assess the impairment of other intangible assets quarterlybased upon the expected future cash flows of the respective assets. These valuations could change if therewere to be future changes in our capital structure, cost of debt, interest rates, capital expenditures, or ourability to perform in accordance with our forecasts. If this estimated fair value changes in future periods, wemay be required to record an impairment charge related to goodwill or other intangible assets, which wouldhave the effect of decreasing our earnings or increasing our losses in such period.

We have a concentration of business with several large key customers and distributors and loss of one ormore of these customers could significantly affect our results of operations.

Several of our large key customers in the OEM market, specifically the precision die-cut business,together comprise a significant portion of our revenues. Our largest customer represents approximately 5% ofour net sales. Additionally in the MRO markets, we do business with several large distribution companies.Our dependence on these large customers makes our relationships with these customers important to ourbusiness. We cannot assure you that we will be able to maintain these relationships and retain this business inthe future. Because these large customers account for such a significant portion of our revenues, they possessrelatively greater capacity to negotiate a reduction in the prices we charge for our products. If we are unableto provide products to our customers at prices acceptable to them, some of our customers may in the futureelect to shift some or all of this business to competitors or to substitute other manufacturer’s products. If oneof our key customers consolidates, is acquired by another company or loses market share, the result of thatevent may have an adverse impact on our business. The loss of or reduction of business from one or more ofthese large key customers could have a material adverse impact on our financial condition and results ofoperations.

We increasingly conduct a sizable amount of our manufacturing outside of the United States, which maypresent additional risks to our business.

As a result of our strong growth in developing economies, particularly in Asia, a significant portion ofour sales is attributable to products manufactured outside of the United States. More than half of ourapproximately 8,600 employees and more than half of our manufacturing locations are outside of the UnitedStates. Our international operations are generally subject to various risks including political, economic andsocietal instability, the imposition of trade restrictions, local labor market conditions, the effects of incometaxes, and differences in business practices. We may incur increased costs and experience delays ordisruptions in product deliveries and payments in connection with international manufacturing and sales thatcould cause loss of revenue. Unfavorable changes in the political, regulatory and business climate in countrieswhere we have operations could have a material adverse effect on our financial condition, results ofoperations and cash flows.

I-10


Table of Contents

Our ability to continue to source low cost MRO products from regions such as China may decline.Conversely, low cost sourcing may also present risks to our revenue if our MRO customers choose tosource cheaper products from low cost regions.

An increasing portion of our MRO products is expected to be sourced from low cost regions in the future.Changes in export laws, suppliers and disruption in transportation routes could lessen our ability to sourcethese products and adversely impact our results. Additionally, our MRO distributors/customers may seek lowcost sourcing opportunities directly, which could cause a loss of business that may adversely impact ourrevenues.

Foreign currency fluctuations could adversely affect our sales and profits.

More than half of our revenues are derived outside of the United States. As such, fluctuations in foreigncurrency can have an adverse impact on our sales and profits as amounts that are measured in foreigncurrency are translated back to U.S. dollars. Any increase in the value of the U.S. dollar in relation to thevalue of the local currency will adversely affect our revenues from our foreign operations when translated intoU.S. dollars. Similarly, any decrease in the value of the U.S. dollar in relation to the value of the localcurrency will increase our development costs in our foreign operations, to the extent such costs are payable inforeign currency, when translated into U.S. dollars. During fiscal year 2007, the weakening U.S. dollar versusthe majority of other currencies increased sales by approximately $41.7 million.

We depend on our key personnel and the loss of these personnel could have an adverse effect on ouroperations.

Our success depends to a large extent upon the continued services of our key executives, managers andother skilled personnel. We cannot ensure that we will be able to retain our key officers and employees. Thedeparture of our key personnel without adequate replacement could severely disrupt our business operations.Additionally, we need qualified managers and skilled employees with technical and manufacturing industryexperience to operate our business successfully. If we are unable to attract and retain qualified individuals orour costs to do so increase significantly, our operations would be materially adversely affected.

We may be unable to successfully implement anticipated changes to our information technology system.

We are now in the process of upgrading certain portions of our information technology. Part of thisupgrade includes continued implementations of SAP in our facilities in China, Europe, Malaysia, Singapore,Mexico, India and the United States. In fiscal 2007, we completed the implementation at 16 of our facilities inthese regions, and expect to continue this pace in future years. We expect that this implementation of the SAPplatform will enable us to more effectively and efficiently manage our supply chain and business processes.Our failure to successfully manage the SAP implementation process or implement these upgrades asscheduled could cause us to incur unexpected costs or to lose customers or sales, which could have a materialadverse effect on our financial results.

The increase in our level of indebtedness could adversely affect our financial health and make usvulnerable to adverse economic conditions.

We have incurred indebtedness to finance acquisitions and for other general corporate purposes. Anyincrease in our level of indebtedness could have important consequences, such as:

• it may be difficult for us to fulfill our obligations under our credit or other debt agreements;

• it may be more challenging or costly to obtain additional financing to fund our future growth;

• we may be more vulnerable to future interest rate fluctuations;

• we may be required to dedicate a substantial portion of our cash flows to service our debt, therebyreducing the amount of cash available to fund new product development, capital expenditures, workingcapital and other general corporate activities;

I-11


Table of Contents

• it may place us at a competitive disadvantage relative to our competitors that have less debt; and

• it may limit our flexibility in planning for and reacting to changes in our business.

Environmental, health and safety laws and regulations could adversely affect our business.

Our facilities and operations are subject to numerous laws and regulations relating to air emissions,wastewater discharges, the handling of hazardous materials and wastes, manufacturing and disposal of certainmaterials, and regulations otherwise relating to health, safety and the protection of the environment. Ourproducts may also be governed by regulations in the countries where they are sold. As a result, we may needto devote management time or expend significant resources on compliance, and we have incurred and willcontinue to incur capital and other expenditures to comply with these regulations. Any significant costs mayhave a material adverse impact on our financial condition, results of operations or cash flows. Further, theselaws and regulations are constantly evolving and it is impossible to predict accurately the effect they mayhave upon our financial condition, results of operations or cash flows.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company currently operates 61 manufacturing or distribution facilities in the following regions:

Americas: Seventeen are located in the United States; three each in Brazil and Mexico; and one inCanada.

Europe: Four are located in the United Kingdom; three are each located in France and Germany; twoeach in Belgium and Sweden; and one each in Denmark, Italy, Norway and Slovakia.

Asia-Pacific: Seven are located in China; four in Australia; three in Thailand; two in South Korea; andone each in Singapore, India, and Malaysia.

The Company’s present operating facilities contain a total of approximately 3.9 million square feet ofspace, of which approximately 2.8 million square feet is leased. The Company believes that its equipment andfacilities are modern, well maintained and adequate for present needs.

Item 3. Legal Proceedings

The Company is, and may in the future be, party to litigation arising in the normal course of business.The Company is not currently a party to any material pending legal proceedings in which managementbelieves the ultimate resolution would have a material adverse effect on the Company’s consolidated financialstatements.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal yearended July 31, 2007.

I-12


Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities

(a) Market Information

Brady Corporation Class A Nonvoting Common Stock trades on the New York Stock Exchange underthe symbol BRC. The quarterly stock price history on the New York Stock Exchange is as follows for each ofthe quarters in the fiscal years ended July 31:

2007 2006 2005(1) High Low High Low High Low

4th Quarter $ 37.73 $ 32.73 $ 42.79 $ 32.94 $ 34.96 $ 28.80 3rd Quarter $ 38.37 $ 30.91 $ 40.49 $ 34.67 $ 35.70 $ 26.30 2nd Quarter $ 40.52 $ 35.70 $ 39.98 $ 28.20 $ 32.22 $ 26.75 1st Quarter $ 38.68 $ 33.16 $ 34.22 $ 26.98 $ 27.49 $ 21.01

(1) Adjusted for a two-for-one stock split in the form of a 100% stock dividend, effective December 31,2004.

There is no trading market for the Company’s Class B Voting Common Stock.

(b) Holders

As of September 24, 2007, there were 711 Class A Common Stock shareholders of record andapproximately 4,100 beneficial shareholders. There are three Class B Common Stock shareholders.

(c) Issuer Purchases of Equity Securities

The Company did not repurchase any of its equity securities in the fourth quarter of fiscal 2007.

(d) Dividends

The Company has followed a practice of paying quarterly dividends on outstanding common stock.Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock areentitled to receive an annual, noncumulative cash dividend of $0.01665 per share (subject to adjustment in theevent of future stock splits, stock dividends or similar events involving shares of Class A Common Stock).Thereafter, any further dividend in that fiscal year must be paid on all shares of Class A Common Stock andClass B Common Stock on an equal basis. The Company’s revolving credit agreement restricts the amount ofcertain types of payments, including dividends, that can be made annually to $50 million plus 75% of theconsolidated net income for the prior fiscal year. The Company believes that based on its historic dividendpractice, this restriction will not impede it in following a similar dividend practice in the future.

During the two most recent fiscal years and for the first quarter of fiscal 2008, the Company declared thefollowing dividends per share on its Class A and Class B Common Stock for the years ended July 31:

Year Ending 2008 2007 2006 1st Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Class A $ 0.15 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.13 $ 0.13 $ 0.13 $ 0.13 Class B 0.13335 0.123 0.14 0.14 0.14 0.113 0.13 0.13 0.13

II-1


Table of Contents

(e) Common Stock Price Performance Graph

The graph below shows a comparison of the cumulative return over the last five fiscal years had $100been invested at the close of business on July 31, 2002, in each of Brady Corporation Class A CommonStock, The Standard & Poor’s (S&P) 500 index, the Standard and Poor’s Small Cap 600 index, and theRussell 2000 index.

Comparison of 5 Year Cumulative Total Return*Among Brady Corporation, The S&P 500 Index,

The S&P Smallcap 600 Index and The Russell 2000 Index

* $100 invested on 7/31/02 in stock or index — including reinvestment of dividends. Fiscal year endedJuly 31. Copyright© 2002, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rightsreserved.

II-2


Table of Contents

Item 6. Selected Financial Data

CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATAYears Ended July 31, 2003 through 2007

2007 2006 2005 2004 2003 (In thousands, except per share amounts)

Operating Data Net Sales(1) $ 1,362,631 $ 1,018,436 $ 816,447 $ 671,219 $ 554,866 Gross Margin 657,044 525,755 433,276 345,361 279,149 Operating Expenses:

Research and development 35,954 30,443 25,078 23,028 18,873 Selling, general and

administrative 449,103 338,796 285,746 248,171 219,861 Restructuring charge — net — — — 3,181 9,589

Total operating expenses 485,057 369,239 310,824 274,380 248,323

Operating Income 171,987 156,516 122,452 70,981 30,826 Other (Expense) Income:

Investment and otherincome — net 2,875 2,403 1,369 577 1,750

Interest expense (22,934) (14,231) (8,403) (1,231) (121)

Net other (expense)income (20,059) (11,828) (7,034) (654) 1,629

Income before income taxes 151,928 144,688 115,418 70,327 32,455 Income Taxes 42,540 40,513 33,471 19,456 11,035

Net Income $ 109,388 $ 104,175 $ 81,947 $ 50,871 $ 21,420

Net Income Per CommonShare —

(Diluted): Class A nonvoting $ 2.00 $ 2.07 $ 1.64 $ 1.07 $ 0.46 Class B voting $ 1.98 $ 2.05 $ 1.63 $ 1.05 $ 0.44

Cash Dividends on: Class A common stock $ 0.56 $ 0.52 $ 0.44 $ 0.42 $ 0.40 Class B common stock $ 0.54 $ 0.50 $ 0.42 $ 0.40 $ 0.39

Balance Sheet at July 31: Working capital $ 303,359 $ 240,537 $ 141,560 $ 131,706 $ 123,878 Total assets 1,698,857 1,365,186 850,147 697,900 449,519 Long-term obligations, less

current maturities 478,575 350,018 150,026 150,019 568 Stockholders’ investment 891,012 746,046 497,274 403,315 338,961

Cash Flow Data: Net cash provided by

operating activities 136,018 114,896 119,103 87,646 57,316 Depreciation and amortization 53,856 35,144 26,822 20,190 17,771 Capital expenditures (51,940) (39,410) (21,920) (14,892) (14,438)

(1) Net sales has been impacted by the acquisitive nature of the Company as seven, eleven and fouracquisitions were completed in fiscal years ended July 31, 2007, 2006 and 2005, respectively. SeeNote 2 in Item 8 for further information on the acquisitions that were completed in each of the years.

II-3


Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

In fiscal 2007, the Company posted record sales of $1,362.6 million and record net income of$109.4 million, an increase of 33.8% and 5.0%, respectively, over fiscal 2006. During fiscal 2007, theCompany completed seven acquisitions and further expansions into Mexico, Thailand, Malaysia, India, Chinaand the Philippines, among other geographic areas.

Of the 33.8% increase in sales, organic growth accounted for 4.2%, acquisitions added 25.5%, andforeign currency translation increased sales by 4.1%. Americas sales increased 22.2%, European sales rose30.4%, and sales from the Asia-Pacific region increased 68.1%.

Net income for fiscal 2007 rose 5.0% to $109.4 million or $2.00 per diluted share of Class A CommonStock, compared to $104.2 million, or $2.07 per diluted share of Class A Common Stock in fiscal 2006.

In fiscal 2007, the Company continued to focus on leveraging its strengths and continued its drive tobecome the number one or two leader in the markets that it serves. Acquisitions were concentrated inbusinesses that management understands well in order to deepen market penetration or expand the Company’sglobal footprint. The Company also invested in expanding many of its global operations with new equipment,information systems and capacity, and adjusted operating capacities to achieve efficiencies and cost savings.

Brady acquired seven companies in fiscal 2007 including businesses that span the globe from theAmericas to Europe to Asia-Pacific. We have added strategically driven acquisitions in people identification,medical precision die-cut, direct marketing and safety and facility products in the United States, safety andfacility products and wire identification in Europe, high performance labeling in South America, and peopleidentification and safety and facility products in the Asia-Pacific region.

Brady completed the transition to a new 50,000 square foot facility in Penang, Malaysia in fiscal 2007after having outgrown its previous space. Other geographic expansions during the year included the start ofnew operations in Dongguan (China), Xiamen (China), Bangalore (India), Reynosa (Mexico), Queretaro(Mexico) and Cainta Rizal (Philippines), as well as the development of a state-of-the-art facility inPathumthani (Thailand). Brady strives to employ the same high safety and environmental standards across theglobe regardless of lesser government requirements in some areas.

Brady remains a financially strong company, with a solid balance sheet and strong cash flows. InSeptember 2007, the Company announced that it will be increasing its cash dividend payment for the22nd straight year.

II-4


Table of Contents

Results of Operations

Year Ended July 31, 2007, Compared to Year Ended July 31, 2006

The comparability of the operating results for the fiscal years ended July 31, 2007 to July 31, 2006, hasbeen impacted by the following acquisitions completed in fiscal 2007, as well as the annualized impact of theacquisitions completed in fiscal 2006.

Acquisitions: Segment Date

Completed

Comprehensive Identification Products, Inc. (“CIPI”) Americas, Europe August 2006 Asia-Pacific Precision Converters, L.P. (“Precision Converters”) Americas October 2006Scafftag, Ltd., Safetrak, Ltd. and Scafftag Pty., Ltd. (collectively

Americas, Europe

and December 2006

“Scafftag”) Asia-Pacific Asterisco Artes Graficas Ltda. (“Asterisco”) Americas December 2006Modernotecnica SpA (“Moderno”) Europe December 2006Clement Communications, Inc. (“Clement”) Americas February 2007Sorbent Products Co., Inc. (“SPC”)

Americas, Europe

and April 2007

Asia-Pacific

Sales for fiscal 2007 increased by $344.2 million, or 33.8% from fiscal 2006. Organic sales, defined assales in the Company’s existing core businesses and regions (exclusive of acquisitions and foreign currencyeffects), increased $42.3 million or 4.2% for the same period. The acquisitions listed above and theannualized impact of the fiscal 2006 acquisitions increased sales by $260.2 million or 25.5% in fiscal 2007compared to fiscal 2006. Fluctuations in the exchange rates used to translate financial results into the UnitedStates Dollar resulted in a sales increase of $41.7 million or 4.1% for the year.

The gross margin as a percentage of sales decreased from 51.6% in fiscal 2006 to 48.2% in fiscal 2007.This decline was driven by the results in our OEM electronics business, primarily in the mobile handsetbusiness in Asia-Pacific. The decline was also driven by the acquisitions that Brady completed in the last12 months, which were more heavily weighted towards OEM electronics, which is generally characterized bylower gross margins and lower selling, general and administrative (“SG&A”) expenses.

Research and development expenses grew to $36.0 million in fiscal 2007 from $30.4 million in fiscal2006, but decreased as a percentage of sales from 3.0% in fiscal 2006 to 2.6% in fiscal 2007. Brady continuesto expand its investment in new product development.

SG&A expenses of $449.1 million in fiscal 2007, as compared to $338.8 million in fiscal 2006, decreasedas a percentage of sales from 33.3% in fiscal 2006 to 33.0% in fiscal 2007. The decrease was due to changesin the Company’s sales mix towards the OEM electronics business, which typically has lower SG&Aexpense.

The Company recorded expenses of $11.4 million in fiscal year 2007 for cost reduction actions, whichare primarily recorded in SG&A expenses in the consolidated statements of income. These actions consistedof $9.2 million for severance and other employee termination costs, $1.8 million for asset write-offs and$0.4 million for facility closure costs. Pre-tax savings from these actions, and the exit activity charges forplanned integration activities of acquisitions completed in the last 12 months that increased goodwill by$8.8 million, are expected to be approximately $14 million in fiscal 2008.

Investment and other income increased $0.5 million in fiscal 2007 from the prior year. The incomerecorded in fiscal 2007 was primarily due to interest income earned on cash and marketable securitiesinvestments, while the income recorded in fiscal 2006 was primarily due to a gain of approximately$1.5 million on a currency option that the Company purchased to hedge against increases in the purchaseprice in U.S. dollar terms of Tradex Converting AB as the transaction was denominated in Swedish Krona.

Interest expense increased $8.7 million in fiscal 2007 due to interest on the $150 million privateplacement of senior notes that the Company completed in the third quarter of fiscal 2007 and the $200 millionprivate placement

II-5


Table of Contents

of senior notes that the Company completed in second quarter of fiscal 2006, as well as interest on theborrowings under our revolving credit facility in fiscal 2007.

The Company’s effective tax rate was 28.0% in both fiscal 2007 and 2006.

Net income for the fiscal year ended July 31, 2007, increased 5.0% to $109.4 million, compared to$104.2 million for fiscal year ended July 31, 2006, as a result of the factors noted above. Diluted net incomeper share comparisons between fiscal 2007 of $2.00 per share and 2006 of $2.07 per share were also affectedby the greater number of shares outstanding in fiscal 2007 as a result of the Company’s July 2006 sale of anadditional 4.6 million shares of Class A Nonvoting Common Stock in a public offering.

Year Ended July 31, 2006, Compared to Year Ended July 31, 2005

The comparability of the operating results for the fiscal years ended July 31, 2006 to July 31, 2005 wasimpacted by the following acquisitions completed in fiscal 2006, as well as the annualized impact of theacquisitions completed in fiscal 2005.

Acquisitions: Segment Date

Completed

STOPware, Inc. (“Stopware”) Americas August 2005Texit Danmark AS and Texit Norge AS Europe September 2005

(collectively “Texit”) TruMed Technologies, Inc. (“TruMed”) Americas October 2005QDP Thailand Co., Ltd (“QDPT”) Asia-Pacific October 2005J.A.M. Plastics Inc. (“J.A.M.”) Americas December 2005Personnel Concepts Americas January 2006IDenticard Systems, Inc. and Identicam Systems Americas February 2006

(collectively “Identicard”) Accidental Health & Safety Pty. Ltd and Asia-Pacific March 2006

Trafalgar First Aid Pty. Ltd. (collectively “Accidental Health”)

Tradex Converting AB (“Tradex”)

Americas,Europeand Asia-Pacific

May 2006

Carroll Australasia Pty. Ltd. (“Carroll”) Asia-Pacific June 2006Daewon Industry Corporation (“Daewon”) Asia-Pacific July 2006

Sales for fiscal 2006 increased by $202.0 million, or 24.7% from fiscal 2005. Organic sales, defined assales in the Company’s existing core businesses and regions (exclusive of acquisitions and foreign currencyeffects), increased $75.4 million or 9.2% for the same period. The acquisitions listed above and theannualized impact of the fiscal 2005 acquisitions increased sales by $130.3 million or 16.0% in fiscal 2006compared to fiscal 2005. Fluctuations in the exchange rates used to translate financial results into the UnitedStates Dollar decreased sales by $3.7 million or 0.5% for the year.

The gross margin as a percentage of sales decreased from 53.1% in fiscal 2005 to 51.6% in fiscal 2006.The decrease was primarily due to a decline in Asia-Pacific attributable to acquisition mix, a shift in theproduct mix towards OEM electronics and cost pressures not offset by sales price increases, and a decline inEurope due to acquisition mix, partially offset by an increase in the Americas due to sales price increases, costreductions and acquisition mix.

Research and development expenses grew to $30.4 million in fiscal 2006 from $25.1 million in fiscal2005, but fell slightly as a percentage of sales from 3.1% in fiscal 2005 to 3.0% in fiscal 2006. Research anddevelopment spending increases of 21.4% were slightly less than the 24.7% increase in sales in fiscal 2006.

SG&A expenses of $338.8 million decreased as a percentage of sales from 35.0% in fiscal 2005 to 33.3%in fiscal 2006. The decrease was due primarily to cost efficiencies gained in the existing businesses in allregions

II-6


Table of Contents

driven by organic sales growth and cost control and a change in our business mix, partially offset by higherSG&A expenses from the acquisitions completed in fiscal 2006.

Investment and other income increased $1.0 million in fiscal 2006 from the prior year, primarily due to again of approximately $1.5 million on a currency option that the Company purchased to hedge againstincreases in the purchase price in U.S. dollar terms of Tradex as the transaction was denominated in SwedishKrona.

Interest expense increased $5.8 million in fiscal 2006 due to the interest on the $200 million privateplacement that was completed in the third quarter of fiscal 2006.

The Company’s effective tax rate decreased from 29.0% for fiscal 2005 to 28.0% for fiscal 2006. Thedecrease in the effective tax rate was due to a continuing shift to a higher percentage of the Company’spre-tax income coming from lower tax rate countries.

Business Segment Operating Results

Management of the Company evaluates results based on the following geographic regions: Americas,Europe, and Asia-Pacific.

Corporate

and (Dollarsinthousands) Americas Europe Asia-Pacific Subtotals Eliminations Total

SALES TOEXTERNALCUSTOMERS

Years ended: July 31, 2007 $ 609,855 $ 416,514 $ 336,262 $ 1,362,631 — $ 1,362,631 July 31, 2006 498,916 319,432 200,088 1,018,436 — 1,018,436 July 31, 2005 417,780 274,691 123,976 816,447 — 816,447

SALESGROWTHINFORMATION

Year endedJuly 31, 2007: Organic 3.3% 8.3% (0.4)% 4.2% — 4.2%Currency 0.5% 9.0% 5.2% 4.1% — 4.1%Acquisitions 18.4% 13.1% 63.3% 25.5% — 25.5%

Total 22.2% 30.4% 68.1% 33.8% — 33.8%Year ended

July 31, 2006: Organic 5.0% 4.2% 34.7% 9.2% — 9.2%Currency 1.5% (4.3)% 1.6% (0.5)% — (0.5)%Acquisitions 12.9% 16.4% 25.1% 16.0% — 16.0%

Total 19.4% 16.3% 61.4% 24.7% — 24.7%SEGMENT

PROFIT(LOSS)

Years ended: July 31, 2007 $ 142,306 $ 107,552 $ 57,236 $ 307,094 $ (8,208) $ 298,886 July 31, 2006 122,525 83,970 49,316 255,811 (10,633) 245,178 July 31, 2005 98,193 79,792 34,228 212,213 (4,845) 207,368

II-7


Table of Contents

NET INCOME RECONCILIATION

Years ended: July 31, July 31, July 31, 2007 2006 2005

Total profit for reportable segments $ 307,094 $ 255,811 $ 212,213 Corporate and eliminations (8,208) (10,633) (4,845)Unallocated amounts:

Administrative costs (126,899) (88,662) (84,916)Investment and other income — net 2,875 2,403 1,369 Interest expense (22,934) (14,231) (8,403)

Income before income taxes 151,928 144,688 115,418 Income taxes (42,540) (40,513) (33,471)

Net income $ 109,388 $ 104,175 $ 81,947

The Company evaluates regional performance using sales and segment profit. Segment profit or loss doesnot include certain administrative costs, such as the cost of finance, stock options, information technology andhuman resources, which are managed as global functions. Interest, investment and other income and incometaxes are also excluded when evaluating regional performance. The increased administrative costs in fiscal2007 include $11.4 million of expenses associated with cost reduction charges.

Americas

Sales in the Americas region increased 22.2% from fiscal 2006 to fiscal 2007, and 19.4% from fiscal2005 to fiscal 2006. Organic growth accounted for 3.3% in 2007 and 5.0% in 2006. The organic growth infiscal 2007 was due to strong growth in the United States in both the Brady and direct marketing brands, withstrong results from the electrical and wire identification products. The growth was partially offset by theplanned transfer of die cut business to Asia-Pacific in the early part of the year. Canada and Brazil alsoexperienced year-over-year growth. The organic growth in fiscal 2006 was due to strong growth in the UnitedStates in our safety, electrical, and industrial markets. Our operations in Canada, Mexico and Brazil alsoprovided year-over-year organic sales growth in 2006 in the Brady brand business. Within the directmarketing business, base sales increased in 2006 over the prior year as well. The acquisitions of TruMed,J.A.M., Personnel Concepts and Identicard in fiscal 2006 and CIPI, Precision Converters, Scafftag, Asterisco,Clement and SPC in fiscal 2007 added 18.4% to fiscal 2007 sales. The acquisitions of Electromark in fiscal2005 and Stopware, TruMed, J.A.M., Personnel Concepts and Identicard in fiscal 2006 added 12.9% to fiscal2006 sales. The positive effect of fluctuations in the exchange rates used to translate financial results intoU.S. currency increased sales in the region by 0.5% and 1.5% in fiscal 2007 and 2006, respectively.

In the Americas region, segment profit as a percentage of sales decreased from 24.6% in 2006 to 23.3%in 2007. This decrease was due to the effect of the recent acquisitions. As expected, the segment’s recentacquisitions have produced an initial rate of profit that is below the average rate of profit of the segment. Asthe businesses are integrated and synergies are achieved, the profit percentages are expected to increase.Comparing fiscal 2006 to 2005, segment profit as a percentage of sales increased from 23.5% to 24.6%, dueto the increase in sales volume and sales prices, partially offset by increases in many of the segment’smaterial and utility costs. Also, as expected, the acquisitions completed in 2006 reported an initial rate ofprofit that was below the average of the region.

Europe

Sales in the European region increased 30.4% in fiscal 2007 from fiscal 2006 and 16.3% in fiscal 2006from fiscal 2005. Organic growth accounted for 8.3% in fiscal 2007 and 4.2% in fiscal 2006. The organicgrowth reported in fiscal 2007 was due to growth in the majority of the businesses and countries as theEuropean economy continued to strengthen. Business in the region has benefited from recent “No Smoking”legislation enacted in France and in the United Kingdom, which stimulated demand for certain of our productlines. The increase in the organic growth in fiscal 2006 was due to modest growth in the direct marketingbusiness as a result of continuing to add new customers and expand product offerings and growth fromexpansion into newer geographies for the Brady brand

II-8


Table of Contents

business, primarily from the expansion into Slovakia, Turkey and the Nordic region. Foreign currencytranslation increased the region’s sales by 9.0% from fiscal 2006 to 2007 compared to a decrease in theregion’s sales of 4.3% from fiscal 2005 to 2006. The acquisitions of Texit and Tradex in fiscal 2006 and CIPI,Scafftag, Moderno and SPC in fiscal 2007 added 13.1% to the region’s sales in fiscal 2007 and theacquisitions of Texit and Tradex in fiscal 2006 and Signs and Labels in fiscal 2005 added 16.4% to theregion’s sales in fiscal 2006.

Segment profit as a percentage of sales decreased to 25.8% in fiscal 2007 from 26.3% in fiscal 2006 anddecreased from 29.0% in fiscal 2005 to 26.3% in fiscal 2006. The decrease experienced in fiscal 2007 from2006 was due to the global headquarter costs of Tradex, partially offset by the strong performance of thedirect marketing businesses in the region. The decrease experienced in fiscal 2006 from 2005 was due to theimpact of a stronger U.S. dollar, the profit dilution caused by the start-up of business in Slovakia and theintegration and acquisition-related costs from the June 2005 acquisition of Signs and Labels and the May2006 acquisition of Tradex. As Tradex’s headquarters are in Sweden, all of the headquarter costs are reflectedin the Europe segment in 2006.

Asia-Pacific

Asia-Pacific sales increased 68.1% in fiscal 2007 from fiscal 2006 and 61.4% in fiscal 2006 from fiscal2005. Organic sales declined 0.4% in fiscal 2007 and increased 34.7% in fiscal 2006. The decline in organicsales in fiscal 2007 was due to a slowdown in our OEM electronics business, led by the loss of certainprograms in the hard disk drive business related to industry consolidation and a slowdown in highperformance labeling. The increase in organic sales for fiscal 2006 was due to the high demand for consumerelectronics and strong growth in the Australian direct marketing and safety businesses. Of the 34.7% increasein organic growth in fiscal 2006, a significant portion was driven by growth in China as the Asian economystrengthened. Foreign currency translation increased the region’s sales by 5.2% from fiscal 2006 to 2007compared to an increase of 1.6% from fiscal 2005 to 2006. The acquisitions of QDPT, Accidental Health,Tradex, Carroll and Daewon in fiscal 2006 and CIPI, Scafftag and SPC in fiscal 2007 added 63.3% to theregion’s sales in fiscal 2007, whereas the acquisitions of Technology Print Supply and Technology SupplyMedia in fiscal 2005 and QDPT, Accidental Health, Tradex, Carroll and Daewon in fiscal 2006 added 25.1%to the region’s sales in fiscal 2006.

Segment profit as a percentage of sales decreased to 17.0% in fiscal 2007 from 24.7% in fiscal 2006 andto 24.7% in fiscal 2006 from 27.6% in fiscal 2005. The decrease in fiscal 2007 was due to the slowdown inour OEM electronics business, excess capacity at our facilities and lower margins from acquisitions. By theend of fiscal 2007, we had nearly completed the capacity and footprint changes that were necessary to reduceour cost structure and be closer to our customers’ facilities. These changes are expected to result in a reducedcost base for the upcoming year, but we should still be able to support sudden spikes in customer demand.The decrease experienced in fiscal 2006 was due to the continued shift of business mix towards the die cutbusiness, which experiences lower margins, combined with pricing pressures from our OEM customers, andthe lower initial rate of profit produced by the companies acquired in the region.

Liquidity and Capital Resources

Cash and cash equivalents were $142.8 million at July 31, 2007, compared to $113.0 million at July 31,2006. Additionally, short-term investments, consisting of investments in auction rate securities, were$19.2 million at July 31, 2007, compared to $11.5 million at July 31, 2006. Working capital increased$62.9 million during fiscal 2007 to $303.4 million and increased $98.9 million during fiscal 2006 to$240.5 million. Accounts receivable balances increased $51.7 million from July 31, 2006 to July 31, 2007.The increase in accounts receivable was due primarily to increased sales volume, foreign currency translationand accounts receivable balances added from acquisitions completed during fiscal 2007. Inventories increased$29.9 million from July 31, 2006 to July 31, 2007 due to foreign currency translation, inventory of acquiredcompanies, and increased inventory levels to support the launch of new products and to maintain adequateservice levels for our customers. Current liabilities increased $61.4 million due to the inclusion of principaldebt payments that are due for payment in the fourth quarter of fiscal 2008 which were included in long-termobligations in the prior year, an increase in accounts payable from the fiscal 2007 acquisitions, and anincrease in other current liabilities as a result of our cost reduction activities.

II-9


Table of Contents

The Company has maintained significant cash balances due in large part to its strong operating cash flow,which totaled $136.0 million for fiscal 2007, $114.9 million for fiscal 2006 and $119.1 million for fiscal2005. The increase from fiscal 2006 to fiscal 2007 was the result of a $5.2 million increase in net income andan $18.7 million increase in depreciation and amortization primarily due to the tangible and intangible assetsacquired in fiscal 2006 and 2007, partially offset by cash requirements for changes in operating assets andliabilities. In accordance with the adoption of SFAS No. 123(R), “Share Based Payment” on August 1, 2005,the Company has classified the income tax benefit from the exercise of stock options subsequent to adoptionas a financing cash inflow. Prior to adoption, this tax benefit was recorded in cash flows from operations andtotaled $5.4 million for the fiscal year ended July 31, 2005.

The acquisitions of businesses used $159.5 million in fiscal 2007, $351.3 million in fiscal 2006, and$79.9 million in fiscal 2005. Contingent consideration payments of $10.9 million were paid during fiscal2007 to satisfy the $6.5 million holdback requirement of the ID Technologies acquisition completed in fiscal2005, the $1.0 million earnout liability of the Stopware acquisition completed in fiscal 2006, the $1.8 millionpurchase price adjustment of the Daewon acquisition completed in fiscal 2006 and the $1.6 million earnoutliability of the QDPT acquisition completed in fiscal 2006.

Capital expenditures were $51.9 million in fiscal 2007, $39.4 million in fiscal 2006 and $21.9 million infiscal 2005. $9.8 million was spent during fiscal 2007 on implementing SAP in 16 of Brady’s globaloperations and ultimately bringing the number of users up from approximately 2,300 to approximately 6,700in the next three years. The remainder of the increase in capital expenditures in fiscal 2007 was due toexpansions in China, Canada, India, Mexico, the Philippines, Slovakia and other locations. Capitalexpenditures in 2006 were driven by the completion of the central distribution warehouse in Milwaukee,Wisconsin, continued expansion in Asia, new facilities in Slovakia and in Canada and by upgrading existingplant and machinery. Capital expenditures in 2005 included plant expansions in China and the start of theaddition of the central distribution warehouse in Milwaukee.

Financing activities provided $129.4 million of cash in fiscal 2007, provided $319.0 million in fiscal2006 and used $9.7 million in fiscal 2005. In fiscal 2006, the Company completed a secondary public offeringof 4.6 million shares of its Class A nonvoting common stock and received proceeds of $157.7 million. Cashused for dividends to shareholders was $30.1 million in fiscal 2007, $26.1 million in fiscal 2006 and$21.3 million in fiscal 2005. Cash received from the exercise of stock options was $6.8 million in fiscal 2007,$8.9 million in fiscal 2006 and $15.7 million in fiscal 2005. The Company did not purchase treasury stock infiscal 2007, but purchased treasury stock of $24.7 million in fiscal 2006 and $1.6 million in fiscal 2005. Infiscal 2006, a stock repurchase plan was implemented by purchasing shares on the open market or in privatelynegotiated transactions, with repurchased shares available for use in connection with the Company’s stockoption plan and for other corporate purposes. The Company completed the repurchase of 800,000 shares of itsClass A Common Stock for $26.5 million in fiscal 2006.

On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan agreementwith a group of five banks that replaced the Company’s previous credit facility that had been entered into onMarch 31, 2004 and amended on January 19, 2006. At the Company’s option, and subject to certain standardconditions, the available amount under the new credit facility may be increased from $200 million up to$300 million. Under the new 5-year agreement, which has a final maturity date of October 5, 2011, theCompany has the option to select either a base interest rate (based upon the higher of the federal funds rateplus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency interest rate (at the LIBOR rateplus a margin based on the Company’s consolidated leverage ratio). A commitment fee is payable on theunused amount of the facility. The agreement requires the Company to maintain two financial covenants. Asof July 31, 2007, the Company was in compliance with the covenants of the agreement. The agreementrestricts the amount of certain types of payments, including dividends, which can be made annually to$50 million plus an amount equal to 75% of consolidated net income for the prior fiscal year of the Company.The Company believes that based on historic dividend practice, this restriction would not impede theCompany in following a similar dividend practice in the future. During fiscal 2007 and 2006, the Companyborrowed and repaid $109.3 million and $415.7 million, respectively. As of July 31, 2007, there were nooutstanding borrowings under the credit facility.

II-10


Table of Contents

On March 23, 2007, the Company completed the private placement of $150 million in ten-year fixednotes at 5.33% interest to institutional investors. The notes will be amortized in equal installments over sevenyears, beginning in 2011 with interest payable on the notes semiannually on September 23 and March 23,beginning in September 2007. The notes have been fully and unconditionally guaranteed on an unsecuredbasis by the Company’s domestic subsidiaries. The Company used the net proceeds of the offering to reduceoutstanding indebtedness under the Company’s revolving loan agreement and fund its ongoing strategicgrowth plan. This private placement was exempt from the registration requirements of the Securities Act of1933. The notes were not registered for resale and may not be resold absent such registration or an applicableexemption from the registration requirements of the Securities Act of 1933 and applicable state securitieslaws. The notes have certain prepayment penalties for repaying them prior to the maturity date. Theagreement also requires the Company to maintain a financial covenant. As of July 31, 2007, the Companywas in compliance with this covenant.

On February 14, 2006, the Company completed the private placement of $200 million in ten-year fixednotes at 5.3% interest to institutional investors. The notes will be amortized in equal installments over sevenyears, beginning in 2010 with interest payable on the notes semiannually on August 14 and February 14,beginning in August 2006. The notes have been fully and unconditionally guaranteed on an unsecured basisby the Company’s domestic subsidiaries. The Company used the net proceeds of the offering to financeacquisitions completed in fiscal 2006 and 2007 and for general corporate purposes. This private placementwas exempt from the registration requirements of the Securities Act of 1933. The notes were not registeredfor resale and may not be resold absent such registration or an applicable exemption from the registrationrequirements of the Securities Act of 1933 and applicable state securities laws. The notes have certainprepayment penalties for repaying them prior to the maturity date. The agreement also requires the Companyto maintain a financial covenant. As of July 31, 2007, the Company was in compliance with this covenant.

On June 30, 2004, the Company finalized a debt offering of $150 million of 5.14% unsecured seniornotes due in 2014 in an offering exempt from the registration requirements of the Securities Act of 1933. Thedebt offering was in conjunction with the Company’s acquisition of EMED. The notes will be amortized overseven years beginning in 2008, with interest payable on the notes being due semiannually on June 28 andDecember 28, beginning in December 2004. The Company used the proceeds of the offering to reduceoutstanding indebtedness under the Company’s revolving credit facilities used to initially fund the EMEDacquisition. The debt has certain prepayment penalties for repaying the debt prior to its maturity date. Theagreement also requires the Company to maintain a financial covenant. As of July 31, 2007, the Companywas in compliance with this covenant.

Long-term obligations as a percentage of long-term obligations plus stockholders’ investment were34.9% at July 31, 2007, and 31.9% at July 31, 2006. Long-term obligations increased by $128.6 million fromJuly 31, 2006 to July 31, 2007 due to the private placement that was completed during the year, partiallyoffset by the portion of long-term obligations that is due for payment in fiscal 2008 that is recorded in currentliabilities, and stockholders’ investment increased $145.0 million during this period due to net earnings forfiscal 2007 and changes in accumulated other comprehensive income.

The Company intends to fund its short-term and long-term operating cash requirements, including itsfiscal 2008 dividend payments, primarily through net cash provided by operating activities.

The Company believes that its continued strong cash flows from operations, existing borrowing capacityand continued access to capital markets will enable it to execute its long-term strategic plan. This strategicplan includes investments, which expand its current market share, open new markets and geographies,develop new products and distribution channels and continue to improve our processes. This strategic planalso includes executing key acquisitions.

Subsequent Events Affecting Liquidity and Capital Resources

On September 11, 2007, the Board of Directors announced an increase in the quarterly dividend toshareholders of the Company’s Class A Common Stock, from $0.14 to $0.15 per share. The dividend will bepaid on October 31, 2007, to shareholders of record at the close of business on October 10, 2007. Thisdividend represents an increase of 7% and is the 22nd consecutive annual increase in dividends since theCompany went public in 1984.

II-11


Table of Contents

Off-Balance Sheet Arrangements

The Company does not have material off-balance sheet arrangements or related party transactions. TheCompany is not aware of factors that are reasonably likely to adversely affect liquidity trends, other than therisks discussed in this filing and presented in other Company filings. However, the following additionalinformation is provided to assist financial statement users.

Operating Leases — These leases generally are entered into for investments in facilities such asmanufacturing facilities, warehouses and office space, computer equipment and Company vehicles, when theeconomic profile is favorable.

Purchase Commitments — The Company has purchase commitments for materials, supplies, services,and property, plant and equipment entered into in the ordinary course of business. Such commitments are notin excess of current market prices.

Due to the proprietary nature of many of the Company’s materials and processes, certain supply contractscontain penalty provisions for early termination. The Company does not believe a material amount ofpenalties will be incurred under these contracts based upon historical experience and current expectations.

Other Contractual Obligations — The Company does not have material financial guarantees or othercontractual commitments that are reasonably likely to adversely affect liquidity other than those discussedbelow under “Payments Due Under Contractual Obligations.”

Related Party Transactions — The Company does not have material related party transactions that affectthe results of operations, cash flow or financial condition.

Payments Due Under Contractual Obligations

The Company’s future commitments at July 31, 2007, for long-term debt, operating lease obligations,purchase obligations, interest obligations and other obligations are as follows (dollars in thousands):

Payments Due by Period Less than 1-3 3-5 More than ContractualObligations Total 1 Year Years Years 5 Years

Long-Term Debt Obligations $ 500,019 $ 21,444 $ 71,433 $ 142,856 $ 264,286 Operating Lease Obligations 71,842 23,097 32,540 10,625 5,580 Purchase Obligations(1) 30,331 30,194 137 0 0 Interest Obligations 150,405 26,305 49,306 39,215 35,579 Other Obligations(2) 10,517 575 1,403 1,804 6,735

Total $ 763,114 $ 101,615 $ 154,819 $ 194,500 $ 312,180

(1) Purchase obligations include all open purchase orders as of July 31, 2007.

(2) Other obligations represent expected payments under the Company’s postretirement medical, dental,and vision plans as disclosed in Note 3 to the consolidated financial statements, under Item 8 of thisreport.

Inflation and Changing Prices

Essentially all of the Company’s revenue is derived from the sale of its products in competitive markets.Because prices are influenced by market conditions, it is not always possible to fully recover cost increasesthrough pricing. Changes in product mix from year to year, timing differences in instituting price changes andthe large amount of part numbers make it virtually impossible to accurately define the impact of inflation onprofit margins.

II-12


Table of Contents

Critical Accounting Estimates

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 109, “Accounting for Income Taxes,” which requires an asset and liability approachto financial accounting and reporting for income taxes. Deferred income tax assets and liabilities arecomputed annually for differences between the financial statement and tax basis of assets and liabilities thatwill result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to theperiods in which the differences are expected to affect taxable income. Valuation allowances are establishedwhen necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is thetax payable or refundable for the period plus or minus the change during the period in deferred tax assets andliabilities. Changes in existing regulatory tax laws and rates may affect the Company’s ability to managesuccessfully regulatory matters around the world, and future business results may affect the amount ofdeferred tax liabilities or the valuation of deferred tax assets over time. The Company’s accounting fordeferred tax consequences represents management’s best estimate of future events that can appropriately bereflected in the accounting estimates. Although the Company’s current estimates may be subject to change inthe future, management does not believe such changes would result in a material period-to-period impact onthe results of operations or the financial condition of the Company.

Goodwill and Intangible Assets

The allocation of purchase price for business combinations requires management estimates and judgmentas to expectations for future cash flows of the acquired business and the allocation of those cash flows toidentifiable intangible assets in determining the estimated fair value for purchase price allocation purposes. Ifthe actual results differ from the estimates and judgments used in these estimates, the amounts recorded in thefinancial statements could result in a possible impairment of the intangible assets and goodwill or requireacceleration of the amortization expense of finite-lived intangible assets. In addition, SFAS No. 142,“Goodwill and Other Intangible Assets,” requires that goodwill and other indefinite-lived intangible assets betested annually for impairment. Changes in management’s estimates or judgments could result in animpairment charge, and such a charge could have an adverse effect on the Company’s financial condition andresults of operations. To aid in establishing the value of goodwill and other intangible assets at the time ofacquisition, Company policy requires that all acquisitions with a purchase price above $5 million must beevaluated by a professional appraisal company.

Reserves and Allowances

The Company has recorded reserves or allowances for inventory obsolescence, uncollectible accountsreceivable, returns, credit memos, incurred but not reported medical claims, and income tax contingencies.These reserves require the use of estimates and judgment. The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonable under the circumstances. TheCompany believes that such estimates are made with consistent and appropriate methods. Actual results maydiffer from these estimates under different assumptions or conditions.

New Accounting Standards


Forward-Looking Statements

Brady believes that certain statements in this Form 10-K are “forward-looking statements” within themeaning of the Private Securities Litigation Reform Act of 1995. All statements related to future, not past,events included in this Form 10-K, including, without limitation, statements regarding Brady’s futurefinancial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levelsand cash flows, and plans and objectives of management for future operations are forward-looking statements.When used in this Form 10-K, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,”“believe,” “should,” “project” or “plan” or similar terminology are generally intended to identifyforward-looking statements. These forward-looking

II-13


Table of Contents

statements by their nature address matters that are, to different degrees, uncertain and are subject to risks,assumptions and other factors, some of which are beyond Brady’s control, that could cause actual results todiffer materially from those expressed or implied by such forward-looking statements. For Brady,uncertainties arise from future financial performance of major markets Brady serves, which include, withoutlimitation, telecommunications, manufacturing, electrical, construction, laboratory, education, governmental,public utility, computer, transportation; difficulties in making and integrating acquisitions; risks associatedwith newly acquired businesses; Brady’s ability to retain significant contracts and customers; futurecompetition; Brady’s ability to develop and successfully market new products; changes in the supply of, orprice for, parts and components; increased price pressure from suppliers and customers; interruptions tosources of supply; environmental, health and safety compliance costs and liabilities; Brady’s ability to realizecost savings from operating initiatives; Brady’s ability to attract and retain key talent; difficulties associatedwith exports; risks associated with international operations; fluctuations in currency rates versus the USdollar; technology changes; potential write-offs of Brady’s substantial intangible assets; risks associated withobtaining governmental approvals and maintaining regulatory compliance for new and existing products;business interruptions due to implementing business systems; and numerous other matters of national,regional and global scale, including those of a political, economic, business, competitive and regulatorynature contained from time to time in Brady’s U.S. Securities and Exchange Commission filings, including,but not limited to, those factors listed in the “Risk Factors” section located in Item 1A of Part I of thisForm 10-K. These uncertainties may cause Brady’s actual future results to be materially different than thoseexpressed in its forward-looking statements. Brady does not undertake to update its forward-lookingstatements.

Risk Factors

Please see the information contained in Item 1A — Risk Factors.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company’s business operations give rise to market risk exposure due to changes in foreign exchangerates. To manage that risk effectively, the Company enters into hedging transactions, according to establishedguidelines and policies, that enable it to mitigate the adverse effects of this financial market risk.

The global nature of the Company’s business requires active participation in the foreign exchangemarkets. As a result of investments, production facilities and other operations on a global scale, the Companyhas assets, liabilities and cash flows in currencies other than the U.S. Dollar. The primary objective of theCompany’s foreign-currency exchange risk management is to minimize the impact of currency movements onintercompany transactions and foreign raw-material imports. To achieve this objective, we hedge a portion ofknown exposures using forward contracts. Main exposures are related to transactions denominated in theBritish Pound, the Euro, Canadian Dollar, Australian Dollar, Swedish Krona and Chinese Yuan currency. Inthe third quarter of fiscal 2006, we purchased a currency option to hedge against increases in the purchaseprice in U.S. dollar terms of Tradex, as the transaction was denominated in the Swedish Krona. A gain ofapproximately $1.5 million was recorded in fiscal 2006 due to this option.

The Company could be exposed to interest rate risk through its corporate borrowing activities. Theobjective of the Company’s interest rate risk management activities is to manage the levels of the Company’sfixed and floating interest rate exposure to be consistent with the Company’s preferred mix. The interest raterisk management program allows the Company to enter into approved interest rate derivatives if there is adesire to modify the Company’s exposure to interest rates. As of July 31, 2007, the Company had no interestrate derivatives.

II-14


Table of Contents

Item 8. Financial Statements and Supplementary Data

BRADY CORPORATION & SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm II-16Financial Statements:

Consolidated Balance Sheets — July 31, 2007 and 2006 II-17Consolidated Statements of Income — Years Ended July 31, 2007, 2006 and 2005 II-18Consolidated Statements of Stockholders’ Investment — Years Ended July 31, 2007, 2006 and

2005 II-19Consolidated Statements of Cash Flows — Years Ended July 31, 2007, 2006 and 2005 II-20Notes to Consolidated Financial Statements — Years Ended July 31, 2007, 2006 and 2005 II-21

II-15


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ofBrady CorporationMilwaukee, WI

We have audited the accompanying consolidated balance sheets of Brady Corporation and subsidiaries(the “Company”) as of July 31, 2007 and 2006, and the related consolidated statements of income,stockholders’ investment, and cash flows for each of the three years in the period ended July 31, 2007. Ouraudits also included the financial statement schedule listed in the Index at Item 15. These financial statementsand financial statement schedule are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financialposition of Brady Corporation and subsidiaries at July 31, 2007 and 2006, and the results of their operationsand their cash flows for each of the three years in the period ended July 31, 2007, in conformity withaccounting principles generally accepted in the United States of America. Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidated financial statements taken as awhole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting OversightBoard (United States), the effectiveness of the Company’s internal control over financial reporting as ofJuly 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated September 27,2007, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’sinternal control over financial reporting and an unqualified opinion on the effectiveness of the Company’sinternal control over financial reporting.

/s/ Deloitte & Touche LLPMilwaukee, WISeptember 27, 2007

II-16


Table of Contents

BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETSJuly 31, 2007 and 2006

2007 2006 (In thousands)

ASSETSCurrent assets:

Cash and cash equivalents $ 142,846 $ 113,008 Short term investments 19,200 11,500 Accounts receivable, less allowance for losses ($9,109 and $6,390, respectively) 239,569 187,907 Inventories:

Finished products 80,486 59,365 Work-in-process 21,309 12,850 Raw materials and supplies 37,983 37,702

Total inventories 139,778 109,917 Prepaid expenses and other current assets 42,020 36,825

Total current assets 583,413 459,157

Other assets: Goodwill 737,450 587,642 Other intangibles assets 149,761 134,111 Deferred income taxes 32,508 34,135 Other 21,111 10,235

Property, plant and equipment: Cost:

Land 6,332 6,548 Buildings and improvements 90,688 78,418 Machinery and equipment 248,356 198,426 Construction in progress 18,107 12,098

363,483 295,490 Less accumulated depreciation 188,869 155,584

Property, plant and equipment — net 174,614 139,906

Total $ 1,698,857 $ 1,365,186

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

Current liabilities: Accounts payable $ 91,596 $ 78,585 Wages and amounts withheld from employees 73,622 61,778 Taxes, other than income taxes 8,461 6,231 Accrued income taxes 24,677 25,243 Other current liabilities 60,254 46,763 Short-term borrowings and current maturities on long-term obligations 21,444 20

Total current liabilities 280,054 218,620 Long-term obligations, less current maturities 478,575 350,018 Other liabilities 49,216 50,502

Total liabilities 807,845 619,140

Stockholders’ investment: Common stock:

Class A Nonvoting — Issued 50,586,524 and 50,481,743 shares, respectively(aggregate liquidation preference of $42,240 and $42,152 at July 31, 2007 and2006, respectively) 506 505

Class B Voting — Issued and outstanding 3,538,628 shares 35 35 Additional paid-in capital 266,203 258,922 Earnings retained in the business 540,238 460,991 Treasury stock — 0 and 292,901 shares, respectively of Class A nonvoting common

stock, at cost — (10,865)Accumulated other comprehensive income 83,376 35,696 Other 654 762

Total stockholders’ investment 891,012 746,046

Total $ 1,698,857 $ 1,365,186

See notes to consolidated financial statements.

II-17


Table of Contents


CONSOLIDATED STATEMENTS OF INCOMEYears Ended July 31, 2007, 2006 and 2005

2007 2006 2005 (In thousands, except per share amounts)

Net sales $ 1,362,631 $ 1,018,436 $ 816,447 Cost of products sold 705,587 492,681 383,171

Gross margin 657,044 525,755 433,276 Operating expenses:

Research and development 35,954 30,443 25,078 Selling, general and administrative 449,103 338,796 285,746

Total operating expenses 485,057 369,239 310,824

Operating income 171,987 156,516 122,452 Other income (expense):

Investment and other income — net 2,875 2,403 1,369 Interest expense (22,934) (14,231) (8,403)

Net other expense (20,059) (11,828) (7,034)

Income before income taxes 151,928 144,688 115,418 Income taxes 42,540 40,513 33,471

Net income $ 109,388 $ 104,175 $ 81,947

Net income per common share(1): Class A Nonvoting:

Basic $ 2.03 $ 2.10 $ 1.67

Diluted $ 2.00 $ 2.07 $ 1.64

Dividends $ 0.56 $ 0.52 $ 0.44

Class B Voting: Basic $ 2.01 $ 2.09 $ 1.66

Diluted $ 1.98 $ 2.05 $ 1.63

Dividends $ 0.54 $ 0.50 $ 0.42

Weighted average Class A and Class B common sharesoutstanding(1)

Basic 53,907 49,494 48,967

Diluted 54,741 50,385 49,859

(1) Adjusted for two-for-one stock split in the form of a 100% stock dividend, effective December 31, 2004


II-18


Table of Contents


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ INVESTMENTYears Ended JULY 31, 2007, 2006 AND 2005

Earnings Accumulated Additional Retained Other Total Common Paid-In in the Treasury Comprehensive Comprehensive Stock Capital Business Stock Income Other Income (In thousands, except per share amounts)

Balances at July 31, 2004 $ 482 $ 72,625 $ 322,224 $ (1,074) $ 9,340 $ (282)

Net income — — 81,947 — — — $ 81,947 Net currency translation

adjustment and other — — — — 8,157 — 8,157

Total comprehensiveincome $ 90,104

Issuance of1,117,431 shares ofClass A CommonStock under stockoption plan 11 15,722 — — — —

Other (Note 6) — — — — — (768) Tax benefit from

exercise of stockoptions — 5,385 — — — —

Purchase of16,030 shares ofClass A CommonStock — — — (501) — —

Stock-basedcompensation expense — 5,297 — — — —

Cash dividends onCommon Stock:

Class A — $.44 pershare — — (19,793) — — —

Class B — $.42 per share — — (1,498) — — —

Balances at July 31, 2005 $ 493 $ 99,029 $ 382,880 $ (1,575) $ 17,497 $ (1,050)




Issuance of4,600,000 shares ofClass A CommonStock from equityoffering 46 157,699 — — — —

Issuance of 4,200 sharesof Class A CommonStock under stockoption plan 1 (8,286) — 17,205 — —

Other (Note 6) — — — — — 1,812 Tax benefit from

exercise of stockoptions — 4,912 — — — —

Purchase of800,000 shares ofClass A CommonStock — — — (26,495) — —



Class A — $.52 pershare — — (24,283) — — —

Class B — $.50 per share — — (1,781) — — —

Balances at July 31, 2006 $ 540 $ 258,922 $ 460,991 $ (10,865) $ 35,696 $ 762





Issuance of104,781 shares ofClass A CommonStock under stockoption plan 1 (4,037) — 10,865 — —

Other (Note 6) — 108 — — — (108) Tax benefit from

exercise of stockoptions and deferredcompensationdistributions — 4,303 — — — —


Adjustment to adoptSFAS No. 158, net oftax of $1,551 — — — — 3,424 —


Class A — $.56 pershare — — (28,218) — — —

Class B — $.54 per share — — (1,923) — — —

Balances at July 31, 2007 $ 541 $ 266,203 $ 540,238 $ — $ 83,376 $ 654


Adjusted for two-for-one stock split in the form of a 100% stock dividend, effective December 31, 2004.

II-19


Table of Contents


CONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended July 31, 2007, 2006 and 2005

2007 2006 2005 (Dollars in thousands)

Operating activities: Net income $ 109,388 $ 104,175 $ 81,947 Adjustments to reconcile net income to net cash provided by operating

activities: Depreciation and amortization 53,856 35,144 26,822 Gain on foreign currency contract — (1,516) — Income tax benefit from the exercise of stock options — — 5,385 Deferred income taxes 70 (1,843) (2,653)Loss on sale of property, plant and equipment 13 124 743 Provision for losses on accounts receivable 3,287 1,152 1,216 Non-cash portion of stock-based compensation expense 6,907 5,568 5,579 Changes in operating assets and liabilities (net of effects of business

acquisitions): Accounts receivable (20,308) (13,620) (7,132)Inventories (12,323) (16,961) (11,847)Prepaid expenses and other assets (13,307) (2,163) (3,572)Accounts payable and accrued liabilities 8,058 10,421 8,827 Income taxes (6,821) 58 9,662 Other liabilities 7,198 (5,643) 4,126

Net cash provided by operating activities 136,018 114,896 119,103

Investing activities: Acquisitions of businesses, net of cash acquired (159,475) (351,331) (79,926)Payments of contingent consideration (10,906) — — Purchases of short-term investments (68,100) (150,900) (50,025)Sales of short-term investments 60,400 146,500 48,075 Purchases of property, plant and equipment (51,940) (39,410) (21,920)Net settlement of foreign currency contract — 1,516 — Proceeds from sale of property, plant and equipment 2,166 546 390 Other (9,184) (2,203) (1,686)

Net cash used in investing activities (237,039) (395,282) (105,092)

Financing activities: Payment of dividends (30,141) (26,064) (21,291)Proceeds from issuance of common stock 6,829 166,664 15,734 Principal payments on debt (110,870) (417,601) (85,604)Proceeds from issuance of debt 259,300 615,730 83,000 Purchase of treasury stock — (24,683) (1,551)Income tax benefit from the exercise of stock options and deferred

compensation distributions 4,303 4,912 —

Net cash provided by (used in) financing activities 129,421 318,958 (9,712)

Effect of exchange rate changes on cash 1,438 1,466 (117)

Net increase in cash and cash equivalents 29,838 40,038 4,182 Cash and cash equivalents, beginning of year 113,008 72,970 68,788

Cash and cash equivalents, end of year $ 142,846 $ 113,008 $ 72,970

Supplemental disclosure of cash flow information: Cash paid during the year for:

Interest, net of capitalized interest $ 19,842 $ 8,991 $ 7,836 Income taxes, net of refunds 49,233 37,661 19,358

Acquisitions: Fair value of assets acquired, net of cash $ 87,398 $ 167,900 $ 60,193 Liabilities assumed (33,248) (63,667) (35,113)Goodwill 105,325 247,098 54,846

Net cash paid for acquisitions $ 159,475 $ 351,331 $ 79,926


II-20


Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears Ended July 31, 2007, 2006 and 2005

(In thousands except share and per share amounts)

1. Summary of Significant Accounting Policies

Nature of Operations — Brady Corporation (“Brady” or the “Company”) is an internationalmanufacturer and marketer of identification solutions and specialty products which identify and protectpremises, products and people. Brady’s core capabilities in manufacturing, printing systems, precisionengineering and materials expertise make it a leading supplier to the Maintenance, Repair and Operations(“MRO”) market and to the Original Equipment Manufacturing (“OEM”) market.

Principles of Consolidation — The accompanying consolidated financial statements include the accountsof Brady Corporation and its subsidiaries (the “Company”), all of which are wholly-owned, with theexception of one subsidiary where a third party retains an insignificant investment. All significantintercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.

Stock Dividend — All previously presented earnings per share, share amounts, and stock price data havebeen adjusted for a two-for-one stock split in the form of a 100% stock dividend, effective December 31,2004.

Fair Value of Financial Instruments — The Company believes the carrying amount of its financialinstruments (cash and cash equivalents, accounts receivable and accounts payable) is a reasonable estimate ofthe fair value of these instruments due to their short-term nature.

Cash Equivalents — The Company considers all highly liquid investments with maturities of threemonths or less when acquired to be cash equivalents, which are recorded at cost.

Available-for-Sale Securities — The Company has invested in certain marketable securities that arecategorized as available-for-sale. These investments consist of auction-rate securities and have been classifiedas short-term investments available-for-sale for all periods presented. The amount of available-for-salesecurities included in the consolidated balance sheets as of July 31, 2007 and July 31, 2006 was $19,200 and$11,500, respectively, and consists solely of auction rate securities.

The auction rate securities held by the Company are municipal bonds with either perpetual orintermediate to long-term maturities. The holding period of each bond is either 7, 28, 35, or 49 days and isdetermined when the security is issued. A Dutch auction takes place at the end of each holding period atwhich time the security can be sold or held. The lowest rate that sells all of the securities is the set rate for thesubsequent holding period. If there are not sufficient orders to place all of the available securities, the auctionis said to have “failed” and liquidity will be denied for the subsequent holding period.

The carrying value of the available-for-sale securities approximates the aggregate fair value of thesecurities and there are no unrealized gains or losses on the available-for-sale securities. There were norealized gains or losses on available-for-sales securities during the periods presented.

Inventories — Inventories are stated at the lower of cost or market. Cost has been determined using thelast-in, first-out (“LIFO”) method for certain domestic inventories (approximately 27% of total inventories atJuly 31, 2007 and approximately 30% of total inventories at July 31, 2006) and the first-in, first-out (“FIFO”)or average cost methods for other inventories. Had all domestic inventories been accounted for on a FIFObasis instead of on a LIFO basis, the carrying value would have increased by $8,228 and $8,863 at July 31,2007 and 2006, respectively.

II-21


Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Depreciation — The cost of buildings and improvements and machinery and equipment is beingdepreciated over their estimated useful lives using primarily the straight-line method for financial reportingpurposes. The estimated useful lives range from 3 to 33 years as shown below.

AssetCategory Range of Useful Lives

Buildings and improvements 10 to 33 YearsMachinery and equipment 3 to 10 Years

Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life ofthe asset.

Goodwill and other Intangible Assets — The cost of intangible assets with determinable useful lives isamortized to reflect the pattern of economic benefits consumed on a straight-line basis, over the estimatedperiods benefited. Intangible assets with indefinite useful lives and goodwill are not subjected to amortization.These assets are assessed for impairment annually and when deemed necessary.

Changes in the carrying amount of goodwill for the years ended July 31, 2007 and 2006, are as follows:

Americas Europe Asia-Pacific Total

Balance as of July 31, 2005 $ 226,843 $ 73,544 $ 31,982 $ 332,369 Goodwill acquired during the period 95,185 33,892 118,021 247,098 Adjustments for prior year acquisitions 0 (341) (154) (495)Translation adjustments 731 4,697 3,242 8,670

Balance as of July 31, 2006 $ 322,759 $ 111,792 $ 153,091 $ 587,642

Goodwill acquired during the period 76,944 26,696 1,685 105,325 Adjustments for prior year acquisitions 2,161 15,005 4,239 21,405 Translation adjustments 2,210 10,206 10,662 23,078

Balance as of July 31, 2007 $ 404,074 $ 163,699 $ 169,677 $ 737,450

The following acquisitions completed in fiscal 2007 increased goodwill during the year ended July 31,2007 by the following amounts:

Segment Goodwill

Comprehensive Identification Products, Inc. (“CIPI”) Americas, Europe and

Asia-Pacific $ 20,451 Precision Converters, L.P. (“Precision Converters”) Americas 9,665 Scafftag, Ltd., Safetrak, Ltd. and Scafftag Pty., Ltd. (collectively

“Scafftag”) Americas, Europe and

Asia-Pacific 7,030 Asterisco Artes Graficas Ltda. (“Asterisco”) Americas 8,508 Modernotecnica SpA (“Moderno”) Europe 11,285 Clement Communications, Inc. (“Clement”) Americas 12,960

Sorbent Products Co., Inc. (“SPC”) Americas, Europe and

Asia-Pacific 35,426

Total $ 105,325

Goodwill also increased $21,405 during the year ended July 31, 2007, as a result of adjustments to theallocation of the purchase price for acquisitions completed in fiscal 2006 and the recording of $1,577 for thecontingent payment due to the previous owners of QDP Thailand Co., Ltd. (“QDPT”) and $1,000 for thecontingent payment due to the previous owners of STOPware, Inc. (“Stopware”), which were both acquired infiscal 2006 (see Note 2 for more information). The largest components of the increase were as a result ofadjustments to the

II-22


Table of Contents



allocation of purchase price related to Tradex Converting AB (“Tradex”) and Daewon Industry Corporation(“Daewon”), which added $14,843 and $2,940, respectively.

Of the $14,843 increase in goodwill related to the allocation of the purchase price for Tradex, $6,788 ofthe increase was due to the accrual for planned cost reduction activities contemplated at the date of theacquisition. The accrual consists of $2,639 for severance and other employee termination costs, $2,885 forcontract termination and facility exit costs, and $1,264 for changes in the valuation of fixed assets. As ofJuly 31, 2007, the remaining liability from such charges was approximately $2,702.

Of the $2,940 increase in goodwill related to the allocation of the purchase price for Daewon, $1,829 ofthe increase was due to the finalization and payment of the purchase price adjustment owed to the formerowners of Daewon and $1,013 of the increase was due to the accrual for planned cost reduction activitiescontemplated at the date of the acquisition. The accrual consists of $289 for severance and other employeetermination costs, $277 for contract termination and facility exit costs, and $447 for changes in the valuationof assets. As of July 31, 2007, the remaining liability from such charges was approximately $309.

The remaining $23,078 increase to goodwill during fiscal 2007 was attributable to the effects of foreigncurrency translation.

The following acquisitions completed in fiscal 2006 increased goodwill during the year ended July 31,2006 by the following amounts:

Segment Goodwill

Stopware Americas $ 2,506 TruMed Technologies, Inc. (“TruMed”) Americas 4,134 J.A.M. Plastics Inc. (“J.A.M.”) Americas 9,116 Personnel Concepts Americas 48,154 IDenticard Systems, Inc. (“IDenticard”) Americas 25,192 Identicam Systems (“Identicam”) Americas 6,001 Texit Danmark AS and Texit Norge AS (collectively

“Texit”) Europe 6,043 QDPT Asia-Pacific 2,298 Daewon Asia-Pacific 18,005 Accidental Health & Safety Pty. Ltd. and Trafalgar

First Aid Pty. Ltd. (collectively “Accidental Health”) Asia-Pacific 6,895 Carroll Australasia Pty. Ltd. (“Carroll”) Asia-Pacific 12,343 Tradex

Americas, Europe and

Asia-Pacific 106,411

Total $ 247,098

Goodwill also decreased $495 during the year ended July 31, 2006, as a result of adjustments to theallocation of the purchase price of Signs and Labels Ltd. (“Signs & Labels”), in Europe which was acquiredon June 24, 2005 and to Technology Print Supplies, Ltd. and its associate, Technology Supply Media Co.,Ltd. (“TPS”) in Thailand, which were acquired on July 29, 2005. The remaining $8,670 increase to goodwillduring fiscal 2006 was attributable to the effects of foreign currency translation.

II-23


Table of Contents



Other intangible assets include patents, trademarks, customer relationships, purchased software,non-compete agreements and other intangible assets with finite lives being amortized in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.”The net book value of these assets was as follows:

July 31, 2007 July 31, 2006 Weighted Weighted Average Gross Average Gross Amortization Carrying Accumulated Net Book Amortization Carrying Accumulated Net Book

Period(Years) Amount Amortization Value

Period(Years) Amount Amortization Value

Amortized otherintangible assets: Patents 15 $ 8,392 $ (5,913) $ 2,479 15 $ 7,885 $ (5,134) $ 2,751 Trademarks and other 5 4,510 (3,250) 1,260 6 3,328 (2,106) 1,222 Customer relationships 7 134,125 (36,674) 97,451 7 109,955 (17,693) 92,262 Non-compete

agreements 4 11,364 (6,294) 5,070 4 9,757 (4,448) 5,309 Other 5 3,297 (2,554) 743 5 3,288 (1,887) 1,401

Unamortized otherintangible assets: Trademarks N/A 42,758 — 42,758 N/A 31,166 — 31,166

Total $ 204,446 $ (54,685) $ 149,761 $ 165,379 $ (31,268) $ 134,111

The acquisitions completed in fiscal 2007 (see Note 2 for more information) attributed to the increases ineach of the categories of other intangible assets listed above. The largest components of the increase incustomer relationships relates to the acquisitions of CIPI, Precision Converters, Scafftag, Asterisco, Moderno,Clement, and SPC which added $5,609, $1,415, $2,767, $5,133, $5,913, $2,200 and $860, respectively. Theseassets will be amortized over a weighted average amortization period of 6.6 years. The increase inunamortized trademarks primarily relates to the acquisitions of Scafftag, Clement and SPC, which added$988, $1,000 and $8,998, respectively.

The value of goodwill and other intangible assets in the consolidated balance sheet at July 31, 2007differs from the value assigned to them in the allocation of purchase price due to the effect of fluctuations inthe exchange rates used to translate financial statements into the United States Dollar between the date ofacquisition and July 31, 2007.

Amortization expense of intangible assets during fiscal 2007, 2006, and 2005 was $21,882, $13,633, and$7,935, respectively. The amortization over each of the next five fiscal years is projected to be $23,286,$22,423, $21,267, $17,906 and $8,996 for the years ending July 31, 2008, 2009, 2010, 2011 and 2012,respectively.

Impairment of Long-Lived and Other Intangible Assets — The Company evaluates whether events andcircumstances have occurred that indicate the remaining estimated useful life of long-lived and otherfinite-lived intangible assets may warrant revision or that the remaining balance of an asset may not berecoverable. The measurement of possible impairment is based on fair value of the assets generally estimatedby the ability to recover the balance of assets from expected future operating cash flows on an undiscountedbasis. If an impairment is determined to exist, any related impairment loss is calculated based on the fair valueof the asset. Based on the assessments completed in fiscal 2007, there have been no indications of impairmentin the Company’s long-lived and other intangible assets.

II-24


Table of Contents



Impairment of Goodwill — The Company evaluates goodwill under SFAS No. 142, which addresses thefinancial accounting and reporting standards for the acquisition of intangible assets outside of a businesscombination and for goodwill and other intangible assets subsequent to their acquisition. This accountingstandard requires that goodwill not be amortized, but instead be tested for impairment on at least an annualbasis.

The Company performed its annual assessments in the fourth quarter of the fiscal year. The assessmentsincluded comparing the carrying amount of net assets, including goodwill, of each reporting unit to itsrespective fair value as of the date of the assessment. Fair value was estimated based upon discounted cashflow analyses. Because the estimated fair value of each of the Company’s reporting units exceeded itscarrying amount, management believes that no impairment existed as of the date of the latest assessment. Noindications of impairment have been identified between the date of the latest assessment and July 31, 2007.

Catalog Costs — Direct response catalog and mailer costs are primarily capitalized and amortized overthe estimated useful lives of the publications (generally less than one year). Non-direct response catalog costsare recorded as prepaid supplies and recorded as advertising expense as they are consumed (less than oneyear). At July 31, 2007 and 2006, $15,292 and $14,331, respectively, of prepaid catalog costs were includedin prepaid expenses and other current assets.

Revenue Recognition — Revenue is recognized when it is both earned and realized or realizable. TheCompany’s policy is to recognize revenue when title to the product, ownership and risk of loss havetransferred to the customer, persuasive evidence of an arrangement exits and collection of the sales proceedsis reasonably assured, all of which generally occur upon shipment of goods to customers. The majority of theCompany’s revenue relates to the sale of inventory to customers, and revenue is recognized when title and therisks and rewards of ownership pass to the customer. Given the nature of the Company’s business and theapplicable rules guiding revenue recognition, the Company’s revenue recognition practices do not containestimates that materially affect the results of operations, with the exception of estimated returns. TheCompany provides for an allowance for estimated product returns, which is recognized as a deduction fromsales at the time of the sale.

Sales Incentives — In accordance with the Financial Accounting Standard Board’s Emerging Issues TaskForce Issue (“EITF”) No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer or aReseller of the Vendor’s Product,” the Company accounts for cash consideration (such as sales incentives andcash discounts) given to its customers or resellers as a reduction of revenue rather than an operating expense.

Shipping and Handling Fees and Costs — The Company accounts for shipping and handling fees andcosts in accordance with EITF Issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs.”Under EITF No. 00-10 amounts billed to a customer in a sale transaction related to shipping costs are reportedas net sales and the related costs incurred for shipping are reported as cost of goods sold.

Advertising Costs — Advertising costs are expensed as incurred, except catalog costs as outlined above.Advertising expense for the years ended July 31, 2007, 2006 and 2005 were $75,452, $57,253 and $50,405,respectively.

Stock Based Compensation — Effective August 1, 2005, the Company adopted SFAS No. 123(R),“Shared Based Payment.” In accordance with this standard, the Company recognizes the compensation cost ofall share-based awards using the grant-date fair value of those awards (the “fair-value-based” method). Theexpense is recognized on a straight-line basis over the vesting period of the award. Total stock compensationexpense recognized by the Company during the years ended July 31, 2007 and 2006 was $6,907 ($4,213 netof taxes) and $5,568 ($3,396 net of taxes), respectively. As of July 31, 2007, total unrecognized compensationcost related to share-based compensation awards was $12,762, net of estimated forfeitures, which theCompany expects to recognize over a weighted-average period of 1.9 years.

II-25


Table of Contents



The Company adopted the fair value recognition provisions of SFAS No. 123(R) using themodified-prospective-transition method. Under that transition method, compensation cost recognized duringfiscal 2007 and 2006 included: (a) compensation costs for all share-based payments granted prior to, but notyet vested as of August 1, 2005, based on the grant date fair value estimated in accordance with the originalprovisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted subsequent toAugust 1, 2005, based on the grant date fair value estimated in accordance with the provisions ofSFAS No. 123(R). Prior periods are not restated under this method of adoption.

Prior to August 1, 2005, the Company accounted for employee stock-based compensation under theintrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting forStock Issued to Employees.” Under APB No. 25, no employee stock option based compensation expense wasrecorded in the income statement prior to August 1, 2005 for the service-based options. Forperformance-based options, the Company recorded compensation expense for changes in the market value ofthe underlying common stock under APB No. 25. The compensation cost for the fiscal year ended July 31,2005 included expense for both performance stock options and restricted stock.

If the Company had elected to recognize compensation cost for the stock option plans based on the fairvalue at the grant dates for awards under those plans, consistent with the method prescribed bySFAS No. 123(R), net income and net income per common share for the fiscal year ended July 31, 2005would have been changed to the pro-forma amounts indicated below:

Net income: As reported $ 81,947 Stock-based compensation expense recorded, net of tax effect 3,350 Pro-forma expense, net of tax effect (3,344)

Pro-forma net income, net of tax effect $ 81,953

Net income per Class A Common Share: Basic:

As reported $ 1.67 Pro-forma adjustments — Pro-forma net income per share 1.67

Diluted: As reported $ 1.64 Pro-forma adjustments — Pro-forma net income per share 1.64

Net income per Class B Common Share: Basic:

As reported $ 1.66 Pro-forma adjustments — Pro-forma net income per share 1.66

Diluted: As reported $ 1.63 Pro-forma adjustments — Pro-forma net income per share 1.63

II-26


Table of Contents



The fair value of stock options used to compute pro-forma net income and net income per common sharedisclosure is the estimated present value at grant date using the Black-Scholes option-pricing model withweighted average assumptions and the resulting estimated fair value for fiscal year 2005 as follows:

Risk-free interest rate 3.1%Expected volatility 31.1%Dividend yield 1.9%Expected option life 4.5 years Weighted average estimated fair value at grant date $7.04

The Company has estimated the fair value of its performance-based and service-based option awardsgranted after August 1, 2005 using the Black-Scholes option-pricing model. The weighted-averageassumptions used in the Black-Scholes valuation model are reflected in the following table:

2007 2006 Performance-Based Service-Based Performance-Based Service-Based Black-ScholesOptionValuationAssumptions Options Options Options Options

Expected term (in years) 6.57 6.07 3.39 5.72 Expected volatility 34.66% 33.99% 31.10% 34.54%Expected dividend yield 1.51% 1.46% 1.50% 1.52%Risk-free interest rate 4.90% 4.52% 4.09% 4.53%Weighted-average market value of

underlying stock at grant date $ 33.32 $ 38.17 $ 33.89 $ 37.62 Weighted-average exercise price $ 33.32 $ 38.17 $ 33.89 $ 37.62 Weighted-average fair value of options

granted $ 12.57 $ 13.56 $ 8.34 $ 13.11

The Company uses historical data regarding stock option exercise behaviors to estimate the expectedterm of options granted based on the period of time that options granted are expected to be outstanding.Expected volatilities are based on the historical volatility of the Company’s stock. The expected dividendyield is based on the Company’s historical dividend payments and historical yield. The risk-free interest rateis based on the U.S. Treasury yield curve in effect on the grant date for the length of time corresponding tothe expected term of the option. The market value is obtained by taking the average of the high and the lowstock price on the date of grant.

In accordance with the adoption of SFAS No. 123(R), the Company has classified the income tax benefitfrom the exercise of stock options subsequent to adoption as a financing cash inflow on the accompanyingconsolidated statements of cash flows. Prior to this adoption, this tax benefit was recorded in cash flows fromoperations.

Research and Development — Amounts expended for research and development are expensed asincurred.

Other comprehensive income — Other comprehensive income consists of foreign currency translationadjustments, net unrealized gains and losses from cash flow hedges and other investments, the unamortizedgain on the post-retirement medical, dental and vision plan and their related tax effects. The components ofaccumulated other comprehensive income were as follows:

July 31, 2007 July 31, 2006

Unrealized gain (loss) on cash flow hedges and securities in deferredcompensation plans, net of tax of $93 and $35, respectively $ 145 $ (55)

Unamortized gain on post-retirement medical, dental and vision plan, net of$1,551 tax 3,424 —

Cumulative translation adjustments 79,807 35,751

Accumulated other comprehensive income $ 83,376 $ 35,696

II-27


Table of Contents



Foreign Currency Translation — Foreign currency assets and liabilities are translated into United Statesdollars at end of period rates of exchange, and income and expense accounts are translated at the weightedaverage rates of exchange for the period. Resulting translation adjustments are included in othercomprehensive income.

Income Taxes — The Company accounts for income taxes in accordance with SFAS No. 109,“Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting andreporting for income taxes. Deferred income tax assets and liabilities are computed annually for differencesbetween the financial statement and tax basis of assets and liabilities that will result in taxable or deductibleamounts in the future based on enacted tax laws and rates applicable to the periods in which the differencesare expected to affect taxable income. Valuation allowances are established when necessary to reducedeferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundablefor the period plus or minus the change during the period in deferred tax assets and liabilities.

Risk Management Activities — The Company is exposed to market risk, such as changes in interest ratesand currency exchange rates. The Company does not hold or issue derivative financial instruments for tradingpurposes.

Currency Rate Hedging — The primary objectives of the foreign exchange risk management activitiesare to understand and mitigate the impact of potential foreign exchange fluctuations on the Company’sfinancial results and its economic well-being. While the Company’s risk management objectives andstrategies will be driven from an economic perspective, the Company will attempt, where possible andpractical, to ensure that the hedging strategies it engages in can be treated as “hedges” from an accountingperspective or otherwise result in accounting treatment where the earnings effect of the hedging instrumentprovides substantial offset (in the same period) to the earnings effect of the hedged item. Generally, these riskmanagement transactions will involve the use of foreign currency derivatives to protect against exposureresulting from intercompany sales and identified inventory or other asset purchases.

The Company primarily utilizes forward exchange contracts with maturities of less than 12 months,which qualify as cash flow hedges. These are intended to offset the effect of exchange rate fluctuations onforecasted sales, inventory purchases and intercompany charges. The fair value of these instruments atJuly 31, 2007 and 2006 was $(421) and $(355), respectively.

Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrumentoffset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only ifthe hedging relationship is expected to be highly effective at the inception of the hedge and on an on-goingbasis. Any ineffective portions are to be recognized in earnings immediately as a component of investmentand other income. The amount of hedge ineffectiveness was not significant for the years ended July 31, 2007,2006 and 2005.

New Accounting Standards — In June 2006, the Financial Accounting Standards Board (“FASB”) issuedFIN 48, “Accounting for Uncertainty in Income Taxes.” This interpretation clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASBStatement No. 109, “Accounting for Income Taxes.” This interpretation establishes a threshold condition thata tax position must meet for any part of the benefit of that position to be recognized in the financialstatements. This Interpretation also provides guidance on de-recognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal yearsbeginning after December 15, 2006. The Company is in the process of completing the process of evaluatingthe impact that will result from adopting FIN 48 and therefore is unable to disclose the impact that adoptingFIN 48 will have on its financial position and results of operations when such statement is adopted.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statementprovides guidance on how to measure the fair value of assets and liabilities utilizing a fair value hierarchy toclassify the sources of information used in the measurement calculation. SFAS No. 157 also provides newdisclosure rules for assets and liabilities measured at fair value based on their level in the fair value hierarchy.This new statement will

II-28


Table of Contents



be effective for fiscal years beginning after November 15, 2007. The Company is in the process of evaluatingthe impact that will result from adopting SFAS No. 157 and therefore is unable to disclose the impact fromadopting SFAS No. 157 will have on its financial position and results of operations when such statement isadopted.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities.” This statement permits entities to choose to use the fair value option to measure manyfinancial instruments and certain other items at fair value that are not currently required to be measured at fairvalue. The objective is to improve financial reporting by providing entities with the opportunity to mitigatevolatility in earnings caused by measuring related assets and liabilities differently without having to applycomplex hedge accounting. This new statement will be effective for fiscal years beginning afterNovember 15, 2007. The Company is in the process of evaluating the impact that will result from adoptingSFAS No. 159 and therefore is unable to disclose the impact from adopting SFAS No. 159 will have on itsfinancial position and results of operations when such statement is adopted.

2. Acquisitions of Businesses

The Company completed seven business acquisitions during the fiscal year ended July 31, 2007, elevenbusiness acquisitions during the fiscal year ended July 31, 2006 and four acquisitions during the fiscal yearended July 31, 2005. All of these transactions were accounted for using the purchase method of accounting;therefore, the results of operations are included in the accompanying consolidated financial statements onlysince their acquisition dates. The Company is continuing to evaluate the initial purchase price allocations forthe acquisitions completed during the fiscal year ended July 31, 2007, and will adjust the allocations asadditional information relative to the fair values of assets and liabilities of the acquired businesses becomeknown.

Fiscal 2007

The Company acquired the following companies in fiscal 2007 for a total combined purchase price, netof cash acquired, of $159,475. A brief description of each company acquired during the year is includedbelow:

• CIPI is headquartered in Burlington, Massachusetts, with operations in Hong Kong, China and theNetherlands. CIPI is a market leader in badging accessories used to identify and track employees andvisitors in a variety of settings including businesses, healthcare facilities, special events andgovernment buildings. CIPI was acquired in August 2006.

• Precision Converters is located in Dallas, Texas and is a supplier of die-cut products to the medicalmarket with a specific focus on disposable, advanced wound-care products. Precision Converters wasacquired in October 2006.

• Scafftag is located in Barry, Wales, U.K., with operations in Australia and in the United States and asales office in the United Arab Emirates. Scafftag is an industry leader in safety identification andfacility management products in the U.K., specializing in products that help companies meet legislativerequirements for safety standards in the oil and gas, construction and scaffolding industries. Scafftagwas acquired in December 2006.

• Asterisco is located in Sao Paulo, Brazil and is a leading manufacturer of industrial high-performancelabels in Brazil, specializing in custom labels printed on film materials for the electronics, automotive,pharmaceutical and other industries. Asterisco was acquired in December 2006.

• Moderno is located in Milan, Italy and is a wire-identification manufacturer serving the Maintenance,Repair and Operations market with products used primarily in the electrical industry. Moderno wasacquired in December 2006.

II-29


Table of Contents



• Clement is located in Concordville, Pennsylvania and is a direct marketer of posters, newsletters,guides and handbooks that address safety, quality, teamwork, sales employment practices, customerservice and OSHA regulations. Clement was acquired in February 2007.

• SPC is headquartered in Somerset, New Jersey, with operations in Belgium and Hong Kong. SPC is aleading manufacturer and marketer of synthetic sorbent materials used in a variety of industrialmaintenance and environmental applications for spill clean-up, containment and control. SPC wasacquired in April 2007.

The purchase agreements for Scafftag and Asterisco each include provisions for contingent paymentsbased upon meeting certain performance conditions over a period of time subsequent to the acquisition. Thetotal maximum contingent payments of $5.2 million have not been accrued as liabilities on the accompanyingconsolidated financial statements as the payments are based on attaining certain financial results which havenot been achieved as of July 31, 2007. Approximately $4.9 million of the contingency related to the Asteriscoacquisition has been placed in an escrow account in compliance with the terms of the purchase agreement.This cash outflow has been recorded in other long-term assets on the accompanying consolidated balancesheets as of July 31, 2007 and in other investing activities on the accompanying consolidated statements ofcash flows for the fiscal year ended July 31, 2007. The purchase agreement of Asterisco also includes aholdback provision of approximately $2.3 million that has been recorded as a liability in the accompanyingconsolidated financial statements at July 31, 2007.

The allocation of the purchase price of each company acquired during fiscal 2007 is preliminary pendingthe final valuation of intangible assets as well as certain tangible assets and liabilities. The following tablesummarizes the combined estimated fair values of the assets acquired and liabilities assumed at the date of theacquisitions.

Current assets $ 38,148 Property, plant & equipment 12,158 Goodwill 105,325 Customer relationships 23,897 Trademarks 11,232 Non-compete agreements 967 Other intangible assets 996

Total assets acquired 192,723 Liabilities assumed 33,248

Net assets acquired $ 159,475

Of the $105,325 allocated to goodwill, $72,134 is expected to be deductible for tax purposes based onpreliminary analysis.

The fiscal 2007 acquisitions were determined to be immaterial individually and in the aggregate, so nopro forma disclosures were required.

Fiscal 2006

The Company acquired the following companies in fiscal 2006 for a total combined purchase price, netof cash acquired, of $351,331. A brief description of each company acquired during the year is includedbelow:

• Stopware is located in San Jose, California and is a manufacturer of visitor-badging and lobby-securitysoftware used to identify and track visitors. Stopware was acquired in August 2005.

• Texit is a manufacturer and distributor of wire markers and cable-management products headquarteredin Odense, Denmark, with operations in Alesund, Norway. Texit was acquired in September 2005.

II-30


Table of Contents



• TruMed is a converter of disposable products and components for manufacturers in the medical device,diagnostic, personal care and industrial markets and is located in Burnsville, Minnesota. TruMed wasacquired in October 2005.

• QDPT was formerly located in Wangnoi, Ayutthaya, Thailand and designs and manufactureshigh-precision components for the electronic, medical and automotive industries, specializing inprecision laminating, stamping and contract assembly. QDPT was acquired in October 2005. In fiscal2007, QDPT combined its operations with TPS in a facility in Klongluang, Pathumthani, Thailand.

• J.A.M. was formerly located in Anaheim, California and specializes in the sale and manufacture ofsecurity-related accessory products including patented badge holders, lanyards and retractable badgereels. J.A.M. was acquired in December 2005. In fiscal 2007, the operations of J.A.M. were mergedwith CIPI.

• Personnel Concepts is located in Pomona, California and is a direct marketer of labor-law complianceposters and related products. Personnel Concepts also offers consultative expertise on requiredcommunication of federal and state minimum wages, HIPAA privacy regulations, and EEOcompliance, among other regulatory areas. Personnel Concepts was acquired in January 2006.

• IDenticard is located in Lancaster, Pennsylvania and its affiliate Identicam is located in Markham,Ontario. The companies are market leaders in personal identification, access control and consumableidentification badges. IDenticard and Identicam were acquired in February 2006.

• Accidental Health was formerly located in Glendenning, New South Wales, Australia and is a supplierand distributor of customized first-aid kits, related safety products and signage for commercialenterprises. Accidental Health was acquired in March 2006. In fiscal 2007, Accidental Healthcombined its operations with Brady Australia Pty. Ltd. in Sydney, Australia.

• Tradex is headquarterd in Kungalv, Sweden with operations in Sweden, China, Korea, Mexico, theUnited States, Brazil, and Taiwan. Tradex is a leading manufacturer and supplier of pressure sensitive,die-cut adhesive components for the mobile handset and electronics industries. Tradex was acquired inMay 2006. In fiscal 2007, the operations in Suzhou, China were closed.

• Carroll is located in Sydney, New South Wales, Australia and is a supplier and distributor ofidentification products for the electrical industry, with a complete line of wiring accessory productsincluding prepared wire and cable markers, termination and connection supplies, wire-bundlingmaterials and electrical circuit protection products. Carroll also markets to the automotive and marinemarkets. Carroll was acquired in June 2006.

• Daewon is based in Seoul, South Korea with additional operations in Gumi, South Korea and formeroperations in Suzhou, China. Daewon is a manufacturer and supplier of pressure sensitive, die-cutadhesive components for the mobile handset and electronics industry and was acquired in July 2006. Infiscal 2007, the operations in Suzhou, China were closed.

II-31


Table of Contents



The following table summarizes the combined estimated fair values of the assets acquired and liabilitiesassumed at the date of the acquisitions.

Current assets $ 72,882 Property, plant & equipment 22,159 Goodwill 247,098 Customer relationships 56,538 Trademarks 10,619 Non-compete agreements 3,206 Purchased software 378 Patents 610 Other intangible assets 1,508

Total assets acquired 414,998 Liabilities assumed 63,667

Net assets acquired $ 351,331

Of the $247,098 allocated to goodwill, $26,209 is expected to be deductible for tax purposes based onpreliminary analysis.

The purchase agreements for Texit, QDPT, and Stopware each included provisions for contingentpayments based upon meeting certain performance conditions over a period of time subsequent to theacquisition. In fiscal 2006 and 2007, $1,800 and $2,577, respectively, of the conditions were met andrecorded in goodwill. Payments of $3,377 were made during fiscal 2007 to satisfy the contingent paymentrequirements. The remaining $1,000 liability will be paid in fiscal 2008. The purchase agreements for QDPT,Stopware and Daewon included holdback provisions of $310, $200 and $4,350, respectively. The holdbackprovision for QDPT was paid in fiscal 2007 and $4,550 remains as a liability in the accompanyingconsolidated financial statements for Stopware and Daewon as of July 31, 2007. The holdback provision forStopware was paid in August 2007.

II-32


Table of Contents



The following unaudited pro forma results of operations of the Company for the fiscal years endedJuly 31, 2006 and 2005, respectively, give effect to all acquisitions completed since August 1, 2005 as listedabove as though the transactions had occurred on August 1, 2004.

Fiscal Year Ended July 31, 2006 2005

Net sales As reported $ 1,018,436 $ 816,447 Pro forma 1,189,545 1,040,327

Net income As reported $ 104,175 $ 81,947 Pro forma 105,883 84,171

Per Class A Nonvoting Common Share: Basic earnings per share As reported $ 2.10 $ 1.67 Pro forma 2.14 1.72

Diluted earnings per share As reported $ 2.07 $ 1.64 Pro forma 2.10 1.69

Per Class B Voting Common Share: Basic earnings per share As reported $ 2.09 $ 1.66 Pro forma 2.12 1.70

Diluted earnings per share As reported $ 2.05 $ 1.63 Pro forma 2.09 1.67

These unaudited pro-forma results have been prepared for comparative purposes only and primarilyinclude adjustments for amortization arising from the valuation of intangible assets, interest expense on debtissued in connection with the acquisitions, and the related income tax adjustments. The pro-forma informationis not necessarily indicative of the results that would have occurred had the acquisitions occurred at thebeginning of the periods presented, nor is it necessarily indicative of future results.

Fiscal 2005

In August 2004, the Company acquired ID Technologies, a Singapore based manufacturer and supplier ofpressure sensitive die-cut components and labeling products. The purchase price was approximately $42,800in cash and included a holdback amount of $6,500, which was paid in August 2006. The holdback is recordedin other liabilities in the accompanying consolidated balance sheets at July 31, 2006. Interest was imputed onthe holdback at a rate of 4.9% per year. The agreement also provided for a contingent payment of no morethan $2,500 if ID Technologies met certain financial targets for the fiscal year ended July 31, 2005. As ofJuly 31, 2005, the financial targets had been met and the corresponding liability was reflected in theconsolidated financial statements at the maximum payment amount and was paid to the sellers in fiscal 2006.Of the purchase price, $25,926 was assigned to goodwill and $16,017 was assigned to other intangible assetsin the purchase price allocation. The allocation of these intangible assets included approximately $13,500 forcustomer relationships, $2,300 for non-compete agreements, and $217 of other intangible assets. There is noremaining goodwill expected to be deductible for tax purposes.

II-33


Table of Contents



In February 2005, the Company acquired Electromark, a manufacturer and supplier of safety and facilityidentification products to the utility industry, headquartered in Wolcott, New York. The purchase price wasapproximately $15,100 in cash. Of the purchase price, a total of $3,509 was assigned to intangible assets otherthan goodwill and $8,344 was assigned to goodwill in the purchase price allocation. The intangible assetsconsist of approximately $1,300 of customer relationships, $1,600 of trademarks, and $609 of other intangibleassets at the time of acquisition. Remaining tax goodwill of $48 is expected to be deductible for tax purposes.

In June 2005, the Company acquired Signs & Labels, a provider of stock and custom signage, customsafety signs, architectural signs and modular signage systems for business offices, schools and hospitals in theUnited Kingdom. The purchase price was approximately $24,000 in cash. Of the purchase price, a total of$10,955 was assigned to intangible assets other than goodwill and $18,039 was assigned to goodwill in theallocation of the purchase price. The intangible assets identified in the allocation of the purchase price consistof approximately $6,109 of customer relationships, $4,554 of trademarks, and $292 of non-compete andother. Immediately following the acquisition, all outstanding debt of Signs & Labels, approximately $2,500,was repaid with cash. There is no remaining goodwill expected to be deductible for tax purposes.

In July 2005, the Company acquired TPS, a manufacturer and supplier of pressure sensitive labels,nameplates and tags in Thailand. The purchase price was approximately $5,250 in cash. Of the purchaseprice, a total of $2,755 was assigned to intangible assets other than goodwill and $2,090 was assigned togoodwill in the allocation of the purchase price. Of the cash purchase price, a portion was being withheld untillegal ownership of the facility owned by TPS was transferred to Brady Corporation. This transfer wascompleted in fiscal 2006. The intangible assets identified in the allocation of the purchase price includeapproximately $1,975 of customer relationships and $780 of non-compete agreements and other. Remainingtax goodwill of $2,506 is expected to be deductible for tax purposes based on the allocation of the purchaseprice.

3. Employee Benefit Plans

The Company provides postretirement medical, dental and vision benefits (the “Plan”) for all regular fulland part-time domestic employees (including spouses) who retire on or after attainment of age 55 with15 years of credited service. Credited service begins accruing at the later of age 40 or date of hire. All activeemployees first eligible to retire after July 31, 1992, are covered by an unfunded, contributory postretirementhealthcare plan where employer contributions will not exceed a defined dollar benefit amount, regardless ofthe cost of the program. Employer contributions to the plan are based on the employee’s age and service atretirement. The Company funds benefit costs on a pay-as-you-go basis.

In October 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans.” This statement requires full recognition of the funded status of definedbenefit and other postretirement plans on the balance sheet as an asset or a liability. SFAS No. 158 alsocontinues to require that unrecognized prior service costs/credits, gains/losses, and transitionobligations/assets be recorded in Accumulated Other Comprehensive Income, thus not changing the incomestatement recognition rules for such plans. The Company adopted the provisions of SFAS No. 158 for thefiscal year ended July 31, 2007.

II-34


Table of Contents



The incremental effects of the initial application of SFAS No. 158 to the consolidated balance at July 31,2007 were as follows:

Before Application After Application of SFAS No. 158 Adjustments of SFAS No. 158

Deferred income taxes $ 34,059 $ (1,551) $ 32,508 Total assets 1,700,408 (1,551) 1,698,857 Other current liabilities 60,254 — 60,254 Total current liabilities 280,054 — 280,054 Other liabilities 54,191 (4,975) 49,216 Total liabilities 812,820 (4,975) 807,845 Accumulated other comprehensive income 79,952 3,424 83,376

Total stockholders’ investment $ 887,588 $ 3,424 $ 891,012

The adoption of SFAS No. 158 had no effect on the Company’s net earnings.

The following table provides a reconciliation of the changes in the Plan’s accumulated benefit obligationsduring the years ended July 31:

2007 2006

Obligation at beginning of year $ 12,650 $ 10,909 Service cost 967 1,049 Interest cost 797 675 Actuarial (gain) loss (2,097) 723 Benefit payments (612) (706)

Obligation at end of fiscal year $ 11,705 $ 12,650

The following table outlines the unfunded status of the Plan recorded as a liability in the accompanyingconsolidated balance sheets as of July 31, 2007 and 2006:

2007 2006

Unfunded status at July 31 $ 11,705 $ 12,650 Unrecognized net actuarial gain — 2,720 Unrecognized prior service gain — 310

Accumulated postretirement benefit obligation (“APBO”) liability $ 11,705 $ 15,680

As of July 31, 2007 and 2006, amounts recognized as liabilities in the accompanying consolidatedbalance sheets consist of:

2007 2006

Current liability $ 575 $ — Noncurrent liability 11,130 15,680

$ 11,705 $ 15,680

II-35


Table of Contents



As of July 31, 2007 and 2006, pre-tax amounts recognized in accumulated other comprehensive incomein the accompanying consolidated balance sheets consist of:

2007 2006

Net actuarial gain $ (4,698) $ — Prior service credit (277) —

$ (4,975) $ —

Net periodic benefit cost for the Plan for fiscal years 2007, 2006 and 2005 includes the followingcomponents:

Years Ended July 31, 2007 2006 2005

Net periodic postretirement benefit cost included the followingcomponents: Service cost — benefits attributed to service during the period $ 967 $ 1,049 $ 895 Prior service cost (33) (33) (33)Interest cost on accumulated postretirement benefit obligation 797 675 689 Amortization of unrecognized gain (119) (27) (127)

Periodic postretirement benefit cost $ 1,612 $ 1,664 $ 1,424

The estimated actuarial gain and prior service credit that will be amortized from accumulated othercomprehensive income into net periodic postretirement benefit cost over the next fiscal year are $303 and$33, respectively.

The following assumptions were used in accounting for the plan:

2007 2006 2005

Weighted average discount rate used in determining accumulatedpostretirement benefit obligation Liability 6.3% 6.0% 5.0%

Weighted average discount rate used in determining net periodicbenefit cost 6.0% 5.0% 6.0%

Assumed health care trend rate used to measure APBO at July 31 9.0% 10.0% 11.0%Rate to which cost trend rate is assumed to decline (the ultimate trend

rate) 5.5% 5.5% 5.5%Fiscal year the ultimate trend rate is reached 2011 2011 2011

The assumed health care cost trend rate has a significant effect on the amounts reported for the Plan. Aone-percentage point change in assumed health care cost trend rates would have the following effects:

One-Percentage One-Percentage Point Increase Point Decrease

Effect on future service and interest cost $ (109) $ 116 Effect on accumulated postretirement benefit obligation at July 31,

2007 (567) 644

II-36


Table of Contents



The following benefit payments, which reflect expected future service, as appropriate, are expected to bepaid during the years ending July 31:

Prior to After Impact of Medicare Part D Medicare Part D Medicare Part D

2008 $ 671 $ 575 $ (96)2009 761 652 (109)2010 874 751 (123)2011 996 852 (144)2012 1,122 952 (170)2013 through 2017 8,031 6,735 (1,296)

In December 2003, the United States enacted into law the Medicare Prescription Drug, Improvement andModernization Act of 2003 (the “Act”). The Act establishes a prescription drug benefit under Medicare(Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide abenefit that is at least actuarially equivalent to Medicare Part D.

In May 2004, the FASB issued FSP 106-2, “Accounting and Disclosure Requirements Related to theMedicare Prescription Drug, Improvement and Modernization Act of 2003”. FSP 106-2 requires companies toaccount for the effect of the subsidy on benefits attributable to past service as an actuarial experience gain andas a reduction of the service cost component of net postretirement health care costs for amounts attributable tocurrent service, if the benefit provided is at least actuarially equivalent to Medicare Part D.

The Company adopted FSP 106-2 effective with the fiscal year beginning August 1, 2004. The Companydetermined that benefits provided to certain participants are expected to be at least actuarially equivalent toMedicare Part D, and, accordingly, the Company will be entitled to a subsidy. The expected subsidy reducednet periodic cost for the years ended July 31, 2007 and 2006 by $522 and $409, respectively, as comparedwith the amount calculated without considering the effects of the subsidy.

Assumptions used to develop these reductions include those used in the determination of the annualexpense under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits other than Pensions,” asamended by SFAS No. 158, and also include expectations of how the federal program would ultimatelyoperate.

The Company has retirement and profit-sharing plans covering substantially all full-time domesticemployees and certain of its foreign subsidiaries. Contributions to the plans are determined annually orquarterly, according to the respective plans, based on earnings of the respective companies and employeecontributions. At July 31, 2007 and 2006, $6,590 and $5,928, respectively, of accrued profit-sharingcontributions were included in other current liabilities and other long-term liabilities on the accompanyingconsolidated balance sheets.

The Company also has deferred compensation plans for directors, officers and key executives which arediscussed below. At July 31, 2007 and 2006, $10,147 and $7,853, respectively, of deferred compensation wasincluded in current and other long-term liabilities on the accompanying consolidated balance sheets.

During fiscal 1998, the Company adopted a new deferred compensation plan that invests solely in sharesof the Company’s Class A Nonvoting Common Stock. Participants in a predecessor phantom stock plan wereallowed to convert their balances in the old plan to this new plan. The new plan was funded initially by theissuance of shares of Class A Nonvoting Common Stock to a Rabbi Trust. All deferrals into the new planresult in purchases of Class A Nonvoting Common Stock by the Rabbi Trust. No deferrals are allowed into apredecessor plan. Shares held by the Rabbi Trust are distributed to participants upon separation from theCompany as defined in the plan agreement.

During fiscal 2002, the Company adopted a new deferred compensation plan that allows futurecontributions to be invested in shares of the Company’s Class A Nonvoting Common Stock or in certain otherinvestment vehicles. Prior deferred compensation deferrals must remain in the Company’s Class A NonvotingCommon Stock. All

II-37


Table of Contents



participant deferrals into the new plan result in purchases of Class A Nonvoting Common Stock or certainother investment vehicles by the Rabbi Trust. Balances held by the Rabbi Trust are distributed to participantsupon separation from the Company as defined in the plan agreement. On May 1, 2006, the plan was amendedto require that deferrals into Brady stock must remain in Brady stock and be distributed in shares of Bradystock.

The amounts charged to expense for the retirement, profit sharing and deferred compensation plansdescribed above were $14,990, $9,862 and $10,980 during the years ended July 31, 2007, 2006 and 2005,respectively.

4. Income Taxes

Income taxes consist of the following:


Currently payable: Federal $ 5,439 $ 14,201 $ 10,002 Foreign 34,835 26,143 24,286 State 2,336 2,012 1,836

42,610 42,356 36,124

Deferred provision (credit): Federal 2,728 (75) (1,215)Foreign (4,151) (472) (855)State 1,353 (1,296) (583)

(70) (1,843) (2,653)

Total $ 42,540 $ 40,513 $ 33,471

Deferred income taxes result from temporary differences in the recognition of revenues and expenses forfinancial statement and income tax purposes.

Income before income taxes consists of the following:


Domestic $ 67,448 $ 46,790 $ 36,985 Foreign 84,480 97,898 78,433

Total $ 151,928 $ 144,688 $ 115,418

II-38


Table of Contents



The approximate tax effects of temporary differences are as follows:

July 31, 2007 Assets Liabilities Total

Inventories $ 6,289 — $ 6,289 Prepaid catalog costs — $ (1,785) (1,785)Employee benefits 2,318 — 2,318 Allowance for doubtful accounts 851 — 851 Other, net 1,939 — 1,939

Current 11,397 (1,785) 9,612

Depreciation — (3,777) (3,777)Amortization 8,170 (19,629) (11,459)Capitalized R&D expenditures 2,333 — 2,333 Deferred compensation 13,799 — 13,799 Postretirement benefits 6,630 — 6,630 Tax loss carryforwards 25,926 — 25,926 Less valuation allowance (19,687) — (19,687)Other, net 333 (1,898) (1,565)

Noncurrent 37,504 (25,304) 12,200

Total $ 48,901 $ (27,089) $ 21,812

July 31, 2006 Assets Liabilities Total

Inventories $ 5,058 — $ 5,058 Prepaid catalog costs — $ (2,196) (2,196)Employee benefits 3,258 — 3,258 Allowance for doubtful accounts 774 — 774 Other, net 2,698 — 2,698

Current 11,788 (2,196) 9,592

Depreciation — (4,300) (4,300)Amortization 12,917 (20,232) (7,315)Capital R&D expenditures 2,800 — 2,800 Deferred compensation 13,446 — 13,446 Postretirement benefits 7,490 — 7,490 Tax loss carryforwards 17,300 — 17,300 Less valuation allowance (15,668) — (15,668)Other, net 624 — 624

Noncurrent 38,909 (24,532) 14,377

Total $ 50,697 $ (26,728) $ 23,969

The valuation allowance increased $4,019 and $10,791 during the fiscal years ended July 31, 2007 and2006, respectively and decreased $657 during the fiscal year ended July 31, 2005.

II-39


Table of Contents



Tax loss carry forwards at July 31, 2007 are comprised of foreign net operating losses of approximately$84,517, of which $67,946 have no expiration date. The remaining balance relates to state net operating lossesof $45,350 and state credits of $1,683. The Company expects to utilize all credits; however, state netoperating losses will begin to expire in the fiscal year ending July 31, 2008.

Rate Reconciliation

A reconciliation of the tax computed by applying the statutory U.S. Federal income tax rate to incomebefore income taxes to the total income tax provision is as follows:


Tax at statutory rate 35.0% 35.0% 35.0%State income taxes, net of Federal tax benefit 1.6% 0.2% 0.7%International rate differential (3.3)% (6.8)% (4.1)%Rate variances arising from foreign subsidiary distributions (2.7)% 0.2% (1.1)%Resolution of prior period tax matters (2.0)% (0.9)% (0.6)%Other, net (0.6)% 0.3% (0.9)%

Effective tax rate 28.0% 28.0% 29.0%

Unremitted Earnings

The Company’s policy is to remit earnings from foreign subsidiaries only to the extent any resultantforeign income taxes are creditable in the United States. Accordingly, the Company does not currentlyprovide for the additional United States and foreign income taxes which would become payable uponremission of undistributed earnings of foreign subsidiaries.

The cumulative undistributed earnings of such subsidiaries at July 31, 2007 amounted to approximately$282,076.

5. Long-Term Obligations

On March 23, 2007, the Company completed the private placement of $150 million in ten-year fixednotes at 5.33% interest to institutional investors. The notes will be amortized in equal installments over sevenyears, beginning in 2011, with interest payable on the notes semiannually on September 23 and March 23,beginning in September 2007. The notes have been fully and unconditionally guaranteed on an unsecuredbasis by the Company’s domestic subsidiaries. The Company used the net proceeds of the offering to reduceoutstanding indebtedness under the Company’s revolving loan agreement and fund its ongoing strategicgrowth plan. The private placement was exempt from the registration requirements of the Securities Act of1933. The notes were not registered for resale and may not be resold absent such registration or an applicableexemption from the registration requirements of the Securities Act of 1933 and applicable state securitieslaws. The notes have certain prepayment penalties for repaying them prior to the maturity date. Theagreement also requires the Company to maintain a financial covenant. As of July 31, 2007, the Companywas in compliance with this covenant.

On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan agreementwith a group of five banks that replaced the Company’s previous credit facility that had been entered into onMarch 31, 2004 and amended on January 19, 2006. At the Company’s option, and subject to certain standardconditions, the available amount under the new credit facility may be increased from $200 million up to$300 million. Under the new 5-year agreement, which has a final maturity date of October 5, 2011, theCompany has the option to select either a base interest rate (based upon the higher of the federal funds rateplus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency interest rate (at the LIBOR rateplus a margin based on the Company’s

II-40


Table of Contents



consolidated leverage ratio). A commitment fee is payable on the unused amount of the facility. Theagreement requires the Company to maintain two financial covenants. As of July 31, 2007, the Company wasin compliance with the covenants of the agreement. The agreement restricts the amount of certain types ofpayments, including dividends, which can be made annually to $50 million plus an amount equal to 75% ofconsolidated net income for the prior fiscal year of the Company. The Company believes that based onhistoric dividend practice, this restriction would not impede the Company in following a similar dividendpractice in the future. As of July 31, 2007, there were no outstanding borrowings under credit facility.

On February 14, 2006, the Company completed the private placement of $200 million in ten-year fixednotes at 5.3% interest to institutional investors. The notes will be amortized in equal installments over sevenyears, beginning in 2010 with interest payable on the notes semiannually on August 14 and February 14,beginning in August 2006. The notes have been fully and unconditionally guaranteed on an unsecured basisby the Company’s domestic subsidiaries. The Company used the net proceeds of the offering to financeacquisitions completed in fiscal 2006 and 2007. This private placement was exempt from the registrationrequirements of the Securities Act of 1933. The notes were not registered for resale and may not be resoldabsent such registration or an applicable exemption from the registration requirements of the Securities Act of1933 and applicable state securities laws. The notes have certain prepayment penalties for repaying them priorto the maturity date. The agreement also requires the Company to maintain a financial covenant. As ofJuly 31, 2007, the Company was in compliance with this covenant.

On June 30, 2004, the Company finalized a debt offering of $150 million of 5.14% fixed rate unsecuredsenior notes due in 2014 in an offering exempt from the registration requirements of the Securities Act of1933. The debt offering was in conjunction with the Company’s acquisition of EMED. The notes will berepaid over 7 years beginning in 2008 with interest payable on the notes semiannually on June 28 andDecember 28 beginning in December 2004. The Company used the proceeds of the offering to reduceoutstanding indebtedness under the Company’s revolving credit facilities. The debt has certain prepaymentpenalties for repaying the debt prior to its maturity date. The agreement also requires the Company tomaintain a financial covenant. As of July 31, 2007, the Company was in compliance with this covenant.

Long-term obligations consist of the following as of July 31:

2007 2006

Various bank loans $ 19 $ 38 Fixed debt 500,000 350,000

500,019 350,038

Less current maturities $ (21,444) $ (20)

$ 478,575 $ 350,018

The fair value of the Company’s long-term obligations approximates $488,780. The fair value of theCompany’s long-term obligations is estimated based on quoted market prices for the same or similar issueand on the current rates offered for debt of the same maturities.

II-41


Table of Contents



Maturities on long-term debt are as follows:

YearsEndingJuly31,

2008 $ 21,444 2009 21,433 2010 50,000 2011 71,428 2012 71,428 Thereafter 264,286

Total $ 500,019

The Company had outstanding letters of credit of $1,680 and $2,887 at July 31, 2007 and 2006,respectively.

6. Stockholders’ Investment

Information as to the Company’s capital stock at July 31, 2007 and 2006 is as follows:

July 31, 2007 July 31, 2006 Shares Shares Shares Shares Authorized Issued Amount Authorized Issued Amount

Preferred Stock,$.01 par value 5,000,000 5,000,000

CumulativePreferred Stock: 6% Cumulative 5,000 5,000 1972 Series 10,000 10,000 1979 Series 30,000 30,000

Common Stock,$.01 par value: Class A Nonvoting 100,000,000 50,586,524 $ 506 100,000,000 50,481,743 $ 505 Class B Voting 10,000,000 3,538,628 35 10,000,000 3,538,628 35

$ 541 $ 540

Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stockare entitled to receive an annual, noncumulative cash dividend of $.01665 per share. Thereafter, any furtherdividend in that fiscal year must be paid on each share of Class A Common Stock and Class B CommonStock on an equal basis.

Other than as required by law, holders of the Class A Common Stock are not entitled to any vote oncorporate matters, unless, in each of the three preceding fiscal years, the $.01665 preferential dividenddescribed above has not been paid in full. Holders of the Class A Common Stock are entitled to one vote pershare for the entire fiscal year immediately following the third consecutive fiscal year in which thepreferential dividend is not paid in full. Holders of Class B Common Stock are entitled to one vote per sharefor the election of directors and for all other purposes.

Upon liquidation, dissolution or winding up of the Company, and after distribution of any amounts due toholders of Cumulative Preferred Stock, holders of the Class A Common Stock are entitled to receive the sumof $0.835 per share before any payment or distribution to holders of the Class B Common Stock. Thereafter,holders of the Class B Common Stock are entitled to receive a payment or distribution of $0.835 per share.Thereafter, holders of the Class A Common Stock and Class B Common Stock share equally in all paymentsor distributions upon liquidation, dissolution or winding up of the Company.

II-42


Table of Contents



The preferences in dividends and liquidation rights of the Class A Common Stock over the Class BCommon Stock will terminate at any time that the voting rights of Class A Common Stock and Class BCommon Stock become equal.

In September 2005, the Company announced that the Board of Directors of the Company approved ashare repurchase program for up to 800,000 shares of the Company’s Class A Common Stock during fiscal2006. The share repurchase plan was implemented by purchasing shares on the open market or in privatelynegotiated transactions, with repurchased shares available for use in connection with the Company’s stockoption plan and for other corporate purposes. The Company completed the repurchase of all 800,000 shares ofits Class A Common Stock for $26,495 under the repurchase plan approved by the Board of Directors duringthe fiscal year ended July 31, 2006.

In June 2006, the Company sold, pursuant to an underwritten public offering, 4,600,000 shares of itsClass A nonvoting common stock at a price of $36 per share. Cash proceeds from the offering, net ofunderwriting discounts, were $158,148. In addition to underwriting discounts, the Company incurred $403 ofadditional accounting, legal and other expenses related to the offering that were charged to additional paid-incapital. The proceeds were used to fund acquisitions completed in fiscal 2006 and early fiscal 2007.

The following is a summary of other activity in stockholders’ investment for the years ended July 31,2007, 2006 and 2005:

Unearned Shares Held Restricted Deferred in Rabbi Stock Compensation Trust, at cost Total

Balances July 31, 2004 $ (282) $ 15,194 $ (15,194) $ (282)

Shares at July 31, 2004 988,534 988,534

Sale of shares at cost — (498) 579 81 Purchase of shares at cost — 516 (1,210) (694)Amortization of restricted stock 282 — — 282 Other — (437) — (437)

Balances July 31, 2005 $ 0 $ 14,775 $ (15,825) $ (1,050)

Shares at July 31, 2005 950,222 997,034

Sale of shares at cost — (450) 451 1 Purchase of shares at cost — 573 (1,466) (893)Effect of plan amendment — 2,704 — 2,704

Balances at July 31, 2006 $ 0 $ 17,602 $ (16,840) $ 762

Shares at July 31, 2006 1,012,914 1,012,914

Sale of shares at cost — (5,242) 5,134 (108)Purchase of shares at cost — 1,215 (1,215) —

Balances at July 31, 2007 $ 0 $ 13,575 $ (12,921) $ 654

Shares at July 31, 2007 724,417 724,417

Prior to 2002, all Brady Corporation deferred compensation was invested in Brady stock. In 2002, theCompany adopted a new deferred compensation plan which allowed investing in other investment funds inaddition to Brady stock. Under this plan, participants were allowed to transfer funds between Brady stock andthe other investment funds. On May 1, 2006 the plan was amended with the provision that deferrals intoBrady stock must

II-43


Table of Contents



remain in Brady stock and be distributed in shares of Brady stock. At July 31, 2007, the deferredcompensation balance in stockholders’ investment represents the investment at the original cost of shares heldin Brady stock for the deferred compensation plan prior to 2002 and the investment at the cost of shares heldin Brady stock for the plan subsequent to 2002, adjusted for the plan amendment on May 1, 2006. Thebalance of shares held in the Rabbi Trust represents the investment in Brady stock at the original cost of allBrady stock held in deferred compensation plans.

The Company’s Employee Monthly Stock Investment Plan (“the Plan”) provides that eligible employeesmay authorize a fixed dollar amount between $20 and $500 per month to be deducted from their pay. Thefunds deducted are forwarded to the Plan administrator and are used to purchase Brady stock at the marketprice. As part of the Plan, Brady pays all brokerage fees for stock purchases and dividend reinvestments.

The Company has an incentive stock plan under which the Board of Directors may grant nonqualifiedstock options to purchase shares of Class A Nonvoting Common Stock to employees. Additionally, theCompany has a nonqualified stock option plan for non-employee directors under which stock options topurchase shares of Class A Nonvoting Common Stock are available for grant. The options have an exerciseprice equal to the fair market value of the underlying stock at the date of grant and generally vest ratably overa three-year period, with one-third becoming exercisable one year after the grant date and one-third additionalin each of the succeeding two years. Options issued under these plans, referred to herein as “service-based”options, generally expire 10 years from the date of grant. The Company also grants stock options to certainexecutives and key management employees that vest upon meeting certain financial performance conditionsover the vesting schedule described above. These options are referred to herein as “performance-based”options. All performance-based options that were granted in fiscal 2006 and in prior years expire five yearsfrom the date of grant. Beginning in fiscal 2007, any performance options granted expire 10 years from thedate of grant.

As of July 31, 2007, the Company has reserved 4,182,739 shares of Class A Nonvoting Common Stockfor outstanding stock options and 1,987,500 shares of Class A Nonvoting Common Stock remain for futureissuance of stock options under the various plans. The Company uses treasury stock or will issue new Class ANonvoting Common Stock to deliver shares under these plans.

Changes in the options are as follows(1):

Weighted Average Options Exercise Option Price Outstanding Price

Balance, July 31, 2004 $ 6.08 - $20.15 3,872,484 $ 15.05

Options granted 22.63 - 31.54 888,000 27.27 Options exercised 9.59 - 17.33 (1,117,431) 14.08 Options cancelled 9.59 - 17.33 (113,722) 15.82

Balance, July 31, 2005 $ 9.59 - $31.54 3,529,331 $ 18.41

Options granted 33.75 - 40.37 955,500 36.33 Options exercised 9.59 - 28.84 (596,643) 14.95 Options cancelled 16.00 - 40.37 (73,136) 27.20

Balance, July 31, 2006 $ 9.59 - $40.37 3,815,052 $ 23.27

Options granted 32.93 - 38.19 908,000 36.74 Options exercised 9.59 - 28.84 (397,682) 17.13 Options cancelled 16.00 - 40.37 (142,631) 35.40

Balance, July 31, 2007 $ 9.59 - $40.37 4,182,739 $ 26.36


II-44


Table of Contents



The total fair value of options vested during the fiscal years ended July 31, 2007, 2006 and 2005 was$4,687, $4,744 and $3,223, respectively. The total intrinsic value of options exercised during the fiscal yearsended July 31, 2007, 2006 and 2005 was $8,272, $13,974 and $14,754, respectively.

There were 2,300,239, 2,062,153 and 1,772,930 options exercisable with a weighted average exerciseprice of $21.07, $17.02 and $14.84 at July 31, 2007, 2006 and 2005, respectively.

The following table summarizes information about stock options outstanding at July 31, 2007:

Options Outstanding and Options Outstanding Exercisable

WeightedAverage Weighted Shares Weighted

Number of

Shares Remaining Average Exercisable Average

Range of Outstanding at Contractual

Life Exercise at July 31, Exercise ExercisePrices July 31, 2007 (in years) Price 2007 Price

Up to $14.99 503,097 3.2 $ 12.89 263,097 $ 12.24 $15.00 to $29.99 1,943,806 4.9 20.79 1,717,970 19.69 $30.00 and up 1,735,836 7.2 36.52 319,172 35.81

Total 4,182,739 5.7 26.36 2,300,239 21.07

As of July 31, 2007, the aggregate intrinsic value of the number of options outstanding and the number ofoptions outstanding and exercisable was $39,548 and $32,494, respectively.

7. Segment Information

The Company evaluates short-term regional performance based on segment profit or loss and customersales. Corporate long-term performance is evaluated based on shareholder value enhancement (“SVE”),which incorporates the cost of capital as a hurdle rate for capital expenditures, new product development,acquisitions, and long-term lines of business. Segment profit or loss does not include certain administrativecosts, interest, foreign exchange gain or loss, other expenses not allocated to a segment, and income taxes.The accounting policies of the reportable segments are the same as those described in the summary ofsignificant accounting policies.

The Company’s reportable segments are geographical regions that are each managed separately. TheCompany has three reportable segments: Americas, Europe and Asia-Pacific. Each reportable segment derivesits revenue from the same types of products and services.

II-45


Table of Contents



Intersegment sales and transfers are recorded at cost plus a standard percentage markup. Intercompanyprofit is eliminated in consolidation. It is not practicable to disclose enterprise-wide revenue from externalcustomers on the basis of product or service.

Corporate and Americas Europe Asia-Pacific Subtotals Eliminations Totals

Year ended July 31,2007: Revenues from

external customers $ 609,855 $ 416,514 $ 336,262 $ 1,362,631 $ 1,362,631 Intersegment

revenues 52,595 6,511 23,554 82,660 $ (82,660) Depreciation and

amortizationexpense 23,643 8,363 16,913 48,919 4,937 53,856

Segment profit (loss) 142,306 107,552 57,236 307,094 (8,208) 298,886 Assets 781,868 347,827 376,645 1,506,340 192,517 1,698,857 Expenditures for

property, plant andequipment 19,834 5,849 15,301 40,984 10,956 51,940


external customers $ 498,916 $ 319,432 $ 200,088 $ 1,018,436 $ 1,018,436 Intersegment


amortizationexpense 20,407 6,282 7,435 34,124 1,020 35,144

Segment profit (loss) 122,525 83,970 49,316 255,811 (10,633) 245,178 Assets 643,206 255,635 338,424 1,237,265 127,921 1,365,186 Expenditures for



external customers $ 417,780 $ 274,691 $ 123,976 $ 816,447 $ 816,447 Intersegment


amortizationexpense 17,428 4,140 4,323 25,891 931 26,822

Segment profit (loss) 98,193 79,792 34,228 212,213 (4,845) 207,368 Assets 446,829 171,536 111,048 729,413 120,734 850,147 Expenditures for


II-46


Table of Contents




Net income reconciliation: Total profit for reportable segments $ 307,094 $ 255,811 $ 212,213

Corporate and eliminations (8,208) (10,633) (4,845)Unallocated amounts:

Administrative costs (126,899) (88,662) (84,916)Investment and other income — net 2,875 2,403 1,369 Interest expense (22,934) (14,231) (8,403)

Income before income taxes 151,928 144,688 115,418 Income taxes (42,540) (40,513) (33,471)

Net income $ 109,388 $ 104,175 $ 81,947

Revenues* Long-Lived Assets** Years Ended July 31, As of Years Ended July 31, 2007 2006 2005 2007 2006 2005

Geographic information: United States $ 589,013 $ 484,387 $ 411,614 $ 537,182 $ 439,467 $ 321,482 China 184,413 90,519 41,480 121,181 114,653 8,669 Other 671,865 508,639 415,813 403,462 307,539 172,276 Eliminations (82,660) (65,109) (52,460)

Consolidated total $ 1,362,631 $ 1,018,436 $ 816,447 $ 1,061,825 $ 861,659 $ 502,427

* Revenues are attributed based on country of origin.

** Long-lived assets consist of property, plant, and equipment, other intangible assets and goodwill.II-47


Table of Contents



8. Net Income Per Common Share

Net income per Common Share is computed by dividing net income (after deducting the applicablepreferential Class A Common Stock dividends) by the weighted average Common Shares outstanding of53,906,769 for 2007, 49,493,976 for 2006, and 48,967,160 for 2005. The preferential dividend on the Class ACommon Stock of $.01665 per share has been added to the net income per Class A Common Share for allyears presented.

Reconciliations of the numerator and denominator of the basic and diluted per share computations for theCompany’s Class A and Class B common stock are summarized as follows:

Years ended July 31, 2007 2006 2005

Numerator Net income (numerator for basic and diluted Class A net

income per share) $ 109,388 $ 104,175 $ 81,947 Less: Preferential dividends (836) (758) (751)Preferential dividends on dilutive stock options (15) (15) (23)

Numerator for basic and diluted Class B net income per share $ 108,537 $ 103,402 $ 81,173

Denominator: Denominator for basic net income per share for both Class A

and B 53,907 49,494 48,967 Plus: effect of dilutive stock options 834 850 847 Treasury shares — deferred compensation plan — 41 45

Denominator for diluted net income per share for both Class Aand B 54,741 50,385 49,859

Class A common stock net income per share calculation: Basic $ 2.03 $ 2.10 $ 1.67 Diluted $ 2.00 $ 2.07 $ 1.64 Class B common stock net income per share calculation: Basic $ 2.01 $ 2.09 $ 1.66 Diluted $ 1.98 $ 2.05 $ 1.63

Options to purchase 1,132,750, 650,500 and 38,000 shares of Class A common stock were excluded fromthe computations of diluted net income per share for years ended July 31, 2007, 2006 and 2005, respectively,because the option exercise prices were greater than the average market price of the common shares and,therefore, the effect would be antidilutive.

II-48


Table of Contents



9. Commitments and Contingencies

The Company has entered into various noncancellable operating lease agreements. Rental expensecharged to operations on a straight-line basis was $22,779, $15,181 and $14,020 for the years ended July 31,2007, 2006 and 2005, respectively. Future minimum lease payments required under such leases in effect atJuly 31, 2007 are as follows, for the years ending July 31:

2008 $ 23,097 2009 18,762 2010 13,778 2011 6,639 2012 3,986 Thereafter 5,580

$ 71,842

In the normal course of business, the Company is named as a defendant in various lawsuits in whichclaims are asserted against the Company. In the opinion of management, the liabilities, if any, which mayultimately result from lawsuits are not expected to have a material adverse effect on the consolidated financialstatements of the Company.

10. Unaudited Quarterly Financial Information

Quarters First Second Third Fourth(1) Total

2007 Net Sales $ 332,259 $ 321,275 $ 346,332 $ 362,765 $ 1,362,631 Gross Margin 164,128 150,161 169,151 173,604 657,044 Operating Income 51,941 32,724 46,303 41,019 171,987 Net Income 34,448 19,709 28,987 26,244 109,388 Net Income Per Class A

Common Share: Basic 0.64 0.37 0.54 0.49 2.03 Diluted 0.63 0.36 0.53 0.48 2.00

2006 Net Sales $ 232,635 $ 230,974 $ 266,494 $ 288,333 $ 1,018,436 Gross Margin 123,991 117,105 140,755 143,904 525,755 Operating Income 44,129 31,276 44,226 36,885 156,516 Net Income 30,198 21,254 30,246 22,477 104,175 Net Income Per Class A

Common Share: Basic 0.61 0.43 0.62 0.44 2.10 Diluted 0.60 0.43 0.61 0.43 2.07

(1) The following significant events affect the comparability of the fourth quarter results for fiscal 2007 and2006:

• Throughout fiscal 2007, the Company completed seven acquisitions. Refer to Note 2. Acquisitions ofBusinesses for further information on the companies acquired.

• In the fourth quarter of fiscal 2007, the Company recorded $7.5 million of pretax costs ($5.4 millionafter-tax, or $0.10 per diluted share) associated with cost reduction activities.

II-49


Table of Contents

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures:

The Company carried out an evaluation, under the supervision and with the participation of itsmanagement, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange ActRule 13a — 15(e)) as of the end of the period covered by this report. Based on that evaluation, the Company’sChief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls andprocedures are effective as of July 31, 2007.

Management’s Report on Internal Control Over Financial Reporting:

The management of Brady Corporation and subsidiaries is responsible for establishing and maintainingadequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f)under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting isdesigned to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principals.

With the participation of the Chief Executive Officer and the Chief Financial Officer, our managementconducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31,2007, based on the framework and criteria established in Internal Control — Integrated Framework, issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment,management concluded that, as of July 31, 2007, the Company’s internal control over financial reporting iseffective based on those criteria. Management’s assessment of the effectiveness of the Company’s internalcontrol over financial reporting, as of July 31, 2007, has been audited by Deloitte & Touche LLP, anindependent registered public accounting firm, as stated in their report, which is included herein.

Because of the inherent limitations of internal control over financial reporting, misstatements may not beprevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of internalcontrol over financial reporting to future periods are subject to the risk that the controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

Changes in Internal Control Over Financial Reporting:

The Company is in the process of implementing its enterprise resource planning system, SAP, to many ofits locations around the world. This implementation has resulted in certain changes to business processes andinternal controls impacting financial reporting. Management is taking the necessary steps to monitor andmaintain appropriate internal controls during this period of change.

There were no other changes in the Company’s internal control over financial reporting that occurredduring the Company’s most recently completed fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financial reporting.

II-50


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ofBrady CorporationMilwaukee, WI

We have audited management’s assessment, included in the accompanying Management’s Report onInternal Control over Financial Reporting, that Brady Corporation and subsidiaries (the “Company”)maintained effective internal control over financial reporting as of July 31, 2007, based on criteria establishedin Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company’s management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and an opinion on the effectivenessof the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervisionof, the company’s principal executive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets ofthe company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility ofcollusion or improper management override of controls, material misstatements due to error or fraud may notbe prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of theinternal control over financial reporting to future periods are subject to the risk that the controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control overfinancial reporting as of July 31, 2007, is fairly stated, in all material respects, based on the criteriaestablished in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of July 31, 2007, based on the criteriaestablished in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting OversightBoard (United States), the consolidated financial statements as of and for the year ended July 31, 2007 of theCompany and our report dated September 27, 2007 expressed an unqualified opinion on those financialstatements and financial statement schedule.

/s/ Deloitte & Touche LLP

Milwaukee, WISeptember 27, 2007

II-51


Table of Contents

Item 9B. Other Information

None.

II-52


Table of Contents

PART III

Item 10. Directors and Executive Officers of the Registrant

Name Age Title

Frank M. Jaehnert 50 President, CEO and DirectorDavid Mathieson 53 Sr. V.P., CFODavid R. Hawke 53 Executive Vice PresidentMichael O. Oliver 54 Sr. V.P., Human ResourcesBarbara Bolens 46 V.P., Treasurer, Director of Investor RelationsAllan J. Klotsche

42

President — Brady Asia-Pacific and V.P., BradyCorporation

Peter C. Sephton 48 President — Brady Europe and V.P., Brady CorporationMatt O. Williamson

51

President — Brady Americas and V.P., BradyCorporation

Thomas J. Felmer

45

President — Direct Marketing Americas and V.P., BradyCorporation

Robert L. Tatterson 42 V.P. and Chief Technology OfficerConrad G. Goodkind 63 Secretary and DirectorElizabeth Pungello 40 DirectorPeter J. Lettenberger 70 DirectorRobert C. Buchanan 67 DirectorRoger D. Peirce 70 DirectorRichard A. Bemis 66 DirectorFrank W. Harris 65 DirectorGary E. Nei 63 DirectorMary K. Bush 59 DirectorFrank R. Jarc 65 DirectorChan W. Galbato 44 DirectorPatrick W. Allender 60 Director

Frank M. Jaehnert — Mr. Jaehnert joined the Company in 1995 as Finance Director of the IdentificationSolutions & Specialty Tapes Group. He served as Chief Financial Officer from November 1996 to January2002. He served as Senior Vice President of the Company and President, Identification Solutions andSpecialty Tapes Group from January 2002 to March 2003. In February 2003, he was appointed to his currentposition, effective April 1, 2003. He has served as a Director of the Company since April 2003. Beforejoining the Company, he held various financial and management positions for Robert Bosch GmbH from1983 to 1995.

David Mathieson — Mr. Mathieson joined Brady in 2001 as European Finance Director, based in theU.K. In August 2003, he was appointed Vice President of Finance for North America, and named VicePresident and Chief Financial Officer in December 2003. Prior to joining Brady, he was Vice President andChief Financial Officer of Honeywell Europe, concluding a 20-year career with Honeywell International, Inc.,which included positions in Belgium, Denmark, United Kingdom and the United States. A native of Scotland,he is a Fellow of the Chartered Management Accountants Institute in the United Kingdom and studied for thisqualification at Glasgow College of Commerce and Glasgow Caledonian University.

David R. Hawke — Mr. Hawke joined the Company in 1979. He served as General Manager of theIndustrial Products Division from 1985 to 1991. From 1991 to February 1995, he served as ManagingDirector — European Operations. From February 1995 to August 2001, he served as Vice President, GraphicsGroup. He served as Vice President, Graphics and Workplace Solutions from August 2001 to January 2002.He served as Senior Vice President of the Company and President, Graphics and Workplace Solutions Groupfrom January 2002 to April 2003. In April 2003, he was appointed to his present position, and will retire fromthat role on September 30, 2007.

III-1


Table of Contents

Michael O. Oliver — Mr. Oliver joined the Company in February 1997 as Vice President — HumanResources. He was appointed to his present position in January 2002. Before joining the Company, he heldvarious human resource positions for Unilever from 1990 to 1997.

Barbara Bolens — Ms. Bolens joined the Company in 1986 and has held a wide variety of positionsbeginning in customer service and customer service management and progressing through productmanagement and new product development. For 10 years, she had been the Assistant Treasurer and has heldseveral other positions in the Corporate Finance Team throughout that time. She was appointed to her presentposition in November 2004. Ms. Bolens also holds the position of Director of Investor Relations.

Allan J. Klotsche — Mr. Klotsche joined the Company in 1988. He served in a variety of sales,marketing, technical, and management roles until 1998, when he was appointed V.P. and General Manager ofthe Precision Tapes Group. He was appointed to his current position in April 2003.

Peter C. Sephton — Mr. Sephton joined the Company in 1997 as Managing Director — Seton-U.K. From2001 to 2003 he served as managing director for Brady’s Identification Solutions Business in Europe. In April2003, he was appointed to his current position. Before joining Brady, he served in a variety of internationalmanagerial roles with Tate and Lyle Plc, Sutcliffe Speakman Plc and Morgan Crucible Plc. He is a graduatein accountancy and law from The University of Wales (UCC).

Matthew O. Williamson — Mr. Williamson joined the Company in 1979. From 1979 to 1994, he servedin a variety of sales and marketing leadership roles. In 1995, Mr. Williamson served as the V.P. and GeneralManager of the Specialty Tape business. From 1996 to 1998, Mr. Williamson served as the V.P. and GeneralManager of the Identification Solutions and Specialty Tapes Division. From 1998 to 2001, he served as V.P.and General Manager of the Identification Solutions Division. From 2001 to 2003, he served as V.P. andGeneral Manager of the Global High Performance Identification Business. In April 2003, he was appointed tohis current position.

Thomas J. Felmer — Mr. Felmer joined the Company in 1989 and has held several sales and marketingpositions until being named Vice President and General Manager of Brady’s U.S. Signmark Division in 1994.In 1999, Mr. Felmer moved to Europe where he led the European Signmark business for two years, thengained additional responsibility for the combined European Seton and Signmark businesses, which he also ledfor two years. In 2003, Mr. Felmer returned to Milwaukee where he was responsible for Brady’s global salesand marketing processes, Brady Software businesses, and due diligence/integration of the EMED acquisition.In June 2004, he was appointed to his current position.

Robert L. Tatterson — Mr. Tatterson joined the Company in 2006 as Vice President and ChiefTechnology Officer. Before joining Brady, he held a variety of positions with increasing responsibility at GEsince 1992. Most recently, Mr. Tatterson served as Technology General Manager for GE Plastics’ Displayand Optical Film business in Mt. Vernon, Indiana. He is a 6 Sigma Master Blackbelt and holds a Ph.D. inchemical engineering from the University of Michigan in Ann Arbor.

Conrad G. Goodkind — Mr. Goodkind has served as Secretary of the Company since November 1999,and was elected to the Board of Directors in September 2007. He will serve as a member of the Governance,Finance and Retirement Committees. He is a partner in the law firm of Quarles & Brady LLP, which hejoined in 1979. He served as a member of the Executive Committee of Quarles & Brady LLP from 1983 to2005. Mr. Goodkind was a director of Cade Industries, Inc. from 1989 to 1999, and a director of AbleDistributing Co., Inc., from 1994 to 2005.

Elizabeth Pungello — Dr. Pungello has served as a Director of the Company since November 2003. Sheis a member of the Company’s Finance, Governance and Technology Committees. Dr. Pungello is thegreat-granddaughter of Brady founder William H. Brady, Sr., and a developmental psychologist at the FrankPorter Graham Child Development Institute at the University of North Carolina at Chapel Hill. She has servedas president of the Brady Education Foundation (formerly the W.H. Brady Foundation) since January 2001.

Peter J. Lettenberger — Mr. Lettenberger has served as a Director of the Company since January 1977.Mr. Lettenberger is chair of the Company’s Finance Committee, and serves as a member of the Audit andCorporate Governance Committees. He retired as a partner of Quarles & Brady LLP, general counsel to theCompany, which he joined in 1964. Mr. Lettenberger will retire from the Brady Board of Directors at theannual meeting in November 2007 pursuant to the Board’s mandatory retirement age.

III-2


Table of Contents

Robert C. Buchanan — Mr. Buchanan has been a Director of the Company since November 1987.Mr. Buchanan is chair of the Corporate Governance Committee, and serves as a member of the Audit andCompensation Committee. Mr. Buchanan is the retired Chairman of the Board of Fox Valley Corporation inAppleton, Wisconsin. He is also a trustee of The Northwestern Mutual Life Insurance Company, Milwaukee,Wisconsin.

Roger D. Peirce — Mr. Peirce has served as a Director of the Company since September 1988.Mr. Peirce is a member of the Compensation, Corporate Governance and Audit Committees of the Company,and chair of the Retirement Committee. Mr. Peirce is a private investor and consultant and is a director ofJournal Communications, Inc. and Allete, Inc. He was the secretary/treasurer of The Jor-Mac Company, Inc.,a metal fabricator in Grafton, Wisconsin, from 1997 through 2002. He was President and CEO of ValuationResearch Corporation from April 1995 to May 1996. From September 1988 to December 1993, he wasPresident of Super Steel Products Corp. in Milwaukee, Wisconsin. Prior to that he was a managing partner forArthur Andersen LLP, independent certified public accountants. Mr. Peirce will retire from the Brady Boardof Directors at the annual meeting in November 2007 pursuant to the Board’s mandatory retirement age.

Richard A. Bemis — Mr. Bemis has been a Director of the Company since January 1990 and is a memberof its Corporate Governance and Technology Committees. Mr. Bemis is Co-chairman of the Board ofDirectors of Bemis Manufacturing Company, a manufacturer of molded plastic products in Sheboygan Falls,Wisconsin. He is also a director of Integrys Corporation, Chicago, Illinois.

Frank W. Harris — Dr. Harris has been a Director of the Company since November 1991. Dr. Harris is amember of its Finance Committee, and chair of the Technology Committee. He is a Emeritus DistinguishedProfessor of Polymer Science at the University of Akron, and has been on its faculty since 1983. He is alsoPresident and CEO of Akron Polymer Systems, a company that develops and markets polymer films, coatingsand resins for high-performance applications.

Gary E. Nei — Mr. Nei has been a Director of the Company since November 1992. Mr. Nei is a memberof the Company’s Finance Committee and Chair of its Compensation Committee. Mr. Nei is Chairman ofNei-Turner Media, a publishing company in Walworth, Wisconsin. He also serves as Chairman of theBeverage Testing Institute, a publishing company in Chicago, Illinois and Chairman of Tastings Imports, animporter of fine wines headquartered in Chicago, Illinois.

Mary K. Bush — Ms. Bush has been a Director of the Company since May 2000. Ms. Bush is a memberof the Company’s Finance and Compensation Committees. Ms. Bush has been President of BushInternational, LLC, a Washington D.C. firm that advises foreign governments and U.S. companies oninternational financial markets. Prior to establishing Bush International, Ms. Bush held several positions infinancial institutions and has served three Presidents of the United States as Alternate Director of theInternational Monetary Fund, Managing Director of the Federal Housing Finance Board, a member of theBoard of Sallie Mae, and chairman of the HELP Commission. Ms. Bush also is a member of the boards ofdirectors of Discover Financial Services, Briggs & Stratton Corporation, United Airlines Corporation andManTech International Corporation. She is also a trustee of the Pioneer Funds and a member of the AdvisoryBoards of Washington Mutual Investors Fund and Stern Stewart.

Frank R. Jarc — Mr. Jarc has been a Director of the Company since May 2000. Mr. Jarc is chair ofBrady’s Audit Committee and is a member of the Compensation Committee and the Retirement Committee.He is a consultant specializing in corporate development and international acquisitions. From April 1999 toMarch 2000 he was Senior Vice President of Corporate Development at Office Depot, an operator of officesupply superstores. Between June 1996 and March 1999, he was Executive Vice President and ChiefFinancial Officer of Viking Office Products, a direct mail marketer of office products. Prior to that, he wasExecutive Vice President and Chief Financial Officer of R.R. Donnelley and Sons, a global printing company.

Chan W. Galbato — Mr. Galbato was elected to the Board of Directors in November 2006, and serves asa member of the Audit and Technology Committees. He is President and CEO of the controls division ofInvensys plc. Prior to his current position, he served as president of services at Home Depot; president andchief executive officer of Armstrong Floor Products; chief executive officer of Choice Parts; and chiefexecutive officer of Coregis Insurance Company, a GE Capital company.

Patrick W. Allender — Mr. Allender was elected to the Brady Corporation Board of Directors inSeptember 2007 and will serve as a member of the Audit and Compensation Committees. He is the formerExecutive Vice

III-3


Table of Contents

President and Chief Financial Officer of Danaher Corporation, which he joined in 1987 as CFO and secretary.Prior to joining Danaher, Mr. Allender was a partner with Arthur Andersen LLP.

All directors serve until their respective successors are elected at the next annual meeting of shareholders.Officers serve at the discretion of the Board of Directors. None of the Company’s directors or executiveofficers has any family relationship with any other director or executive officer.

Audit Committee Financial Expert — The Company’s board of directors has determined that at least oneaudit committee financial expert is serving on its audit committee. Mr. Jarc, chair of the audit committee is afinancial expert and is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under theExchange Act.

Director Independence — A majority of the directors must meet the criteria for independence establishedby the Board in accordance with the rules of the New York Stock Exchange. In determining the independenceof a director, the Board must find that a director has no relationship that may interfere with the exercise of hisor her independence from management and the Company. Based on these guidelines all directors, with theexception of Frank Jaehnert, President and CEO, are deemed independent.

Meetings of Non-management Directors — The non-management directors of the Board regularly meetalone without any members of management present. Mr. Buchanan, Chairman of the Corporate GovernanceCommittee, is the presiding director at these sessions. In fiscal 2007 there were five executive sessions.Interested parties can raise concerns to be addressed at these meetings by calling the confidential Bradyhotline at 1-800-368-3613.

Audit Committee Members — The Audit Committee, which is a separately-designated standingcommittee of the Board of Directors, is composed of Mr. Jarc (Chairman), Mr. Lettenberger, Mr. Peirce,Mr. Buchanan, Mr. Galbato and Mr. Allender. Each member of the Audit Committee has been determined bythe Board to be independent under the rules of the SEC and NYSE. The charter for the Audit Committee isavailable on the Company’s corporate website at www.bradycorp.com.

Code of Ethics — For a number of years, the Company has had a code of ethics for its employees. Thiscode of ethics applies to all of the Company’s employees, officers and Directors. The code of ethics can beviewed at the Company’s corporate website, www.bradycorp.com, or may be obtained in print by anyshareholder by contacting Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201. TheCompany intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding anamendment to, or a waiver from, a provision of its code of ethics by placing such information on its Internetwebsite.

Corporate Governance Guidelines — Brady’s Corporate Governance Principles as well as the chartersfor the Audit Committee, Corporate Governance Committee, and Compensation Committee, are available onthe Company’s Corporate website, www.bradycorp.com. Shareholders may request printed copies of thesedocuments from Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201.

Certifications — We have attached the required certifications under Section 302 of the Sarbanes-OxleyAct of 2002 regarding the quality of our public disclosures as Exhibits 31.1 and 31.2 to this report.Additionally, on December 13, 2006, the Company filed with the New York Stock Exchange (“NYSE”) anannual certification regarding our compliance with the NYSE’s corporate governance listing standards asrequired by NYSE Rule 303A.12(a).

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and personswho own more than ten percent of a registered class of the Company’s equity securities, to file with the SECinitial reports of ownership and reports of changes in ownership of Common Stock and other equity securitiesof the Company. Executive officers, directors and greater than ten percent stockholders are required by SECregulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to theCompany and written representations that no other reports were required, during the fiscal year ended July 31,2007, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percentbeneficial owners were complied with, except for the initial Form 3 filing for Chan W. Galbato.

III-4


Table of Contents

Item 11. Executive Compensation

Compensation Discussion and Analysis

The Compensation Discussion and Analysis explains the compensation philosophy, policies and practicesof the Company with respect to its named executive officers. This section focuses on the compensationprovided to the Company’s principal executive officer, principal financial officer and its other three mosthighly compensated executives, who are collectively referred to in this section as the “named executiveofficers.”

For purposes of this section, named executive officers refers to Frank M. Jaehnert, President, ChiefExecutive Officer and Director; David Mathieson, Senior Vice President and Chief Financial Officer; DavidR. Hawke, Executive Vice President; Peter C. Sephton, President — Brady Europe and Vice President, BradyCorporation; and Matthew O. Williamson, President — Brady Americas and Vice President, BradyCorporation.

Executive Compensation Overview and Philosophy

The goal of our executive compensation program is to build long-term value for our shareholders byaligning the financial interests of our management team with those of our shareholders. It is also intended toproperly attract, motivate and retain our management team and ensure that executives are in possession of ameaningful amount of Company stock.

The Compensation Committee of the Board of Directors is responsible for monitoring and approving thecompensation of the Company’s named executive officers. In compliance with this responsibility, theCommittee annually reviews and approves the individual performance of these executives along with anychanges in their base salary, the payment of an annual cash incentive and grant of equity awards. TheCommittee utilizes the services of an independent executive compensation consulting firm (Pearl Meyer &Partners) to assist with the review and evaluation of our compensation levels and policies. Their expertise isalso utilized in modifying any existing or proposing any new compensation arrangements. In addition to thisprofessional advice, the Committee relies upon its collective judgment and other available competitiveinformation and data in making executive compensation decisions. The Committee has avoided strictadherence to rigid guidelines, formulas or short-term fluctuations in our stock price when determining ormodifying executive compensation.

In order to successfully achieve our Company objectives, a combination of short-term and long-termincentives has been developed. The Compensation Committee believes a proper balance between theseelements is necessary and includes a combination of cash and equity, with fixed and variable components.These components are heavily dependent upon Company financial performance, while also taking intoaccount personal performance to a lesser degree. Our short-term incentive is in the form of cash, while thelong-term incentive is equity based and includes both performance-based and time-based stock options. Webelieve these programs are designed to specifically support the achievement of the Company’s profitabilityand sales goals. We also believe these programs further enhance the performance of the Company byproviding effective tools to retain, attract and motivate a group of highly skilled executives. This results instrong financial and operational performance, which supports the preservation and enhancement ofshareholder value over time, without incurring undue risk to our shareholders.

Annually senior management recommends a proposal for compensation for each named executiveofficer, with the exception of Frank M. Jaehnert, to the Compensation Committee. The CompensationCommittee reviews the proposal for each officer and ultimately approves a compensation arrangement forthem.

Elements of Executive Compensation for Fiscal 2007

As noted above, it is the Compensation Committee’s philosophy that an executive compensation programshould be used to promote both the short and long-term financial objectives of the Company, encourage theexecutives to act as owners of the Company and attract and retain people who are qualified, motivated andcommitted to excellence. The Compensation Committee believes this can be accomplished throughcompensation programs that provide a balanced mix of performance-based cash and equity compensation.The annual bonus and equity compensation provide incentives that reward superior performance and providefinancial consequences for underperformance.

The Compensation Committee is responsible for reviewing the overall level of compensation, as well asthe various elements of compensation for each of the named executive officers. In addition to the specificprocess noted below for base salaries, annual cash incentives and long-term equity compensation, theCompensation Committee

III-5


Table of Contents

reviews individual comprehensive “tally sheets” which include the annual cash and equity grants, along withall other benefits over a trailing four-year period. Stock options exercised and the impact of the issuance ofstock options on earnings per share dilution are monitored on a regular basis as well.

Base Salary

Individual performance and competitiveness in the market are key components in determining base salaryand any changes in base salary. Nationally recognized compensation surveys utilizing all companies andindustries are obtained annually. A regression analysis is then performed by the Company’s HumanResources team based on the appropriate organization level (company, group, division) and sales volume ofthe appropriate Brady business. The base salary is designed to compensate executives for their level ofresponsibility and sustained individual performance. One consideration is the comparison of the individualbase salaries to the median for like positions and responsibilities based on these nationally recognizedcompensation surveys. The Compensation Committee annually reviews base salaries to ensure, on the basis ofresponsibility and performance, that executive compensation is meeting the Compensation Committees’principles.

In addition to the nationally recognized compensation surveys, the Compensation Committee uses peergroup data for similar positions nationally to test the reasonableness and competitiveness of base salary byposition, but also uses judgment to determine the appropriate level of base salary, which we believe reflectsindividual performance and responsibilities. The peer group utilized includes 29 companies that are in asimilar industry with annual revenues up to approximately $5 billion. Included in this peer group is a smallersubset of 13 companies that have annual revenues of less than $2 billion to provide data for similar sizedcompanies to Brady. The determination of base salary also affects the annual bonus payout since anindividual’s annual bonus target is expressed as a percentage of base salary. The Compensation Committeealso utilizes the services of an outside consultant (Pearl Meyer & Partners) to assist in understanding thecompensation levels in the market.

As a result of the factors noted above, base salary increases varied for the named executive officers. Forfiscal 2007, the increases ranged from five to eleven percent.

Annual Cash Incentive Bonus

All named executive officers participate in an annual cash incentive plan. This plan has a short-termfocus (one year) and is mainly based on the fiscal year results. Corporate sales and corporate net incomeresults are included in the plan as well as regional sales and regional segment profit results for those withregional responsibility. In addition, each individual has 20% of their bonus based on their achievement ofindividual goals.

As part of the annual review of compensation, the Compensation Committee takes into account totalannual cash compensation in the marketplace, as reflected in the above mentioned peer group and nationallyrecognized compensation surveys. Salary combined with annual target bonus levels that have been establishedas a percentage of salary are intended to approximate the median of the market total annual cashcompensation, as defined in nationally recognized compensation surveys, provided that Brady performs at alevel to pay out at 100% of the targeted annual incentive award. Brady’s actual annual bonus payouts willvary above or below the targeted amount based on the actual performance of the Company during the fiscalyear. The payouts can range from 0% to 150% of the target. The Compensation Committee expectsManagement to propose ambitious targets. Any bonus payment above 100% of the target requires superiorperformance by the Company.

The Compensation Committee annually reviews the components of these plans, the required performancelevels at each target payout level and the calculation of the individual bonus awards. Sales and net incomemust exceed the prior year in order for these components of the bonus plan to pay out.

The individual incentive target amounts are set at a percentage of base salary and the target amounts arelarger for individuals with greater levels of responsibility. The target bonus percentage for Mr. Jaehnert is100% of his base salary, for Mr. Hawke is 75% of his base salary, and for Messrs. Mathieson, Sephton andWilliamson are 70% of

III-6


Table of Contents

their base salaries. These targets differ between individuals because the market differs for each of thepositions. The following table provides the components of the target bonus percentages.

Consolidated Consolidated Regional Regional Individual Target

Name Net Sales Net

Income Sales Segment

Profit Goals Payout

Frank M. Jaehnert 20.0% 60.0% —% —% 20.0% 100.0%David Mathieson 14.0% 42.0% —% —% 14.0% 70.0%David R. Hawke 15.0% 45.0% —% —% 15.0% 75.0%Peter C. Sephton 3.5% 10.5% 10.5% 31.5% 14.0% 70.0%Matthew O. Williamson 3.5% 10.5% 10.5% 31.5% 14.0% 70.0%

For the fiscal year ended July 31, 2007, the Company paid the following annual cash incentive bonuses:

Name Bonus ($) Salary%

Frank M. Jaehnert 430,677 67.4%David Mathieson 144,413 49.3%David R. Hawke 211,809 52.8%Peter C. Sephton 326,886 92.8%Matthew O. Williamson 234,939 84.1%

The 2007 allocation of the annual cash incentive bonuses by component is as follows:

Consolidated Consolidated Regional Regional Individual Actual

Name Net Sales Net

Income Net

Sales Segment

Profit Goals Payout

Frank M. Jaehnert 30.0% 20.4% —% —% 17.0% 67.4%David Mathieson 21.0% 14.3% —% —% 14.0% 49.3%David R. Hawke 22.5% 15.3% —% —% 15.0% 52.8%Peter C. Sephton 5.3% 3.6% 15.7% 47.2% 21.0% 92.8%Matthew O. Williamson 5.3% 3.6% 15.7% 46.9% 12.6% 84.1%

The payouts in fiscal 2007 represent an achievement of 150% for the consolidated net sales target of$1.26 billion, 34% for the consolidated net income target of $125 million and 150% for the regional net salestargets and 149% to 150% for the regional segment profit targets for those named executive officers withregional responsibility. A component of the payout was also influenced by the individual’s performanceagainst his individual goals.

Equity Incentives: Long-term Incentive Compensation

The Company utilizes a combination of performance-based stock options and time-based stock options toattract, retain and motivate key employees who directly impact the performance of the Company over atimeframe of greater than a year. The combination of both performance-based stock options and time-basedstock options is used to provide a balance between annual company performance and the generation oflong-term shareholder value. Stock option based plans are influenced by Brady’s stock price, which directlyaffects the amount of compensation the executive receives upon vesting and exercising the options. Thenumber of options granted is determined by the Compensation Committee with periodic input from its outsideconsultant, Pearl Meyer & Partners. In 2007, Pearl Meyer & Partners reviewed the long-term incentivecompensation, as well as the total compensation of the Company’s five most highly compensated executiveswith the five most highly compensated executives of peer companies nationally. The peer group utilized inthis analysis was the same as used in the analysis of base salaries discussed above. A comprehensive reportwas provided to the Compensation Committee of its findings.

Performance-based Stock Options:

In order to provide greater alignment between the financial performance of the Company and theexecutive’s long-term incentive compensation, the named executive officers have been issuedperformance-based stock options which require specific net income target attainment over a three year periodin order to vest. The net income target set on the options granted in fiscal 2007 was $125 million inconsolidated net income for fiscal 2007, which was an aggressive target to reach and was subsequently notmet. Aggressive targets for fiscal 2008 and fiscal 2009 consolidated net income were also set and may bedifficult to achieve. As the targets for the fiscal year ended July 31,

III-7


Table of Contents

2007 were not met, one-third of these options did not vest. The performance-based stock options that weregranted in prior years that had targets tied to fiscal 2007 consolidated net income were met and the optionsdid vest.

The grant date of the options was pre-determined in advance to coincide with the beginning of theCompany’s fiscal year. Consistent with the practice, the stock option grants were reviewed and approved bythe Compensation Committee in July with an effective grant date of the first working day of August. Thegrant price is the fair market value of the stock on the grant date and is calculated by taking the average of thehigh and low stock price on that date. These stock options vest one-third each fiscal year following the grantbased on attaining the predetermined minimum consolidated net income target each year. These options havea maximum ten year life following the grant date.

Time-based Stock Options:

The timing of the grant of time-based stock options is determined at the mid-November CompensationCommittee meeting each year. The grant date is established approximately two weeks following the release ofthe first quarter earnings in November. Time-based stock option grants in fiscal 2007 were reviewed andapproved by the Compensation Committee on November 15, 2006 with an effective grant date ofNovember 30, 2006. The grant price is the fair market value of the stock on the grant date and is calculated bytaking the average of the high and low stock price on that date. The time-based stock options vest one-thirdeach year for the first three years and have a ten year life.

Employment and Post-Employment Benefits

General Benefits:

The named executive officers receive the same basic benefits that are offered by the Company to otheremployees, including medical, dental, disability and life insurance.

Retirement Benefits:

Most Brady employees in the United States and certain expatriate employees working for its internationalsubsidiaries are eligible to participate in Brady Corporation’s Funded Retirement Plan (“Funded RetirementPlan”) and the Brady Corporation Matched 401(k) Plan (the “Employee 401(k) Plan”). Under these plans theCompany agrees to contribute certain amounts to both Plans. Under the Funded Retirement Plan, theCompany contributes 4% of the eligible earnings of each person covered by the Funded Retirement Plan. Inaddition, participants may elect to have their annual pay reduced by up to 4% and have the amount of thisreduction contributed to the Employee 401(k) Plan and matched by an additional, equal contribution by theCompany. Participants may also elect to have up to another 21% of their eligible earnings contributed to theEmployee 401(k) Plan (without an additional matching contribution by the Company). The assets of theEmployee 401(k) Plan and Funded Retirement Plan credited to each participant are invested by the trustee ofthe Plans as directed by each plan participant in several investment funds as permitted by the Employee401(k) Plan and Funded Retirement Plan.

Due to the IRS income limitations for participating in the Employee 401(k) Plan and the FundedRetirement Plan, the named executive officers are eligible to participate in the Brady Restoration Plan whichis a non-qualified deferred compensation plan that allows an equivalent benefit to the Employee 401(k) Planand the Funded Retirement Plan for the executives on their income above the IRS limits.

Benefits are generally payable upon the death, disability, or retirement of the participant or upontermination of employment before retirement, although benefits may be withdrawn from the employee 401(k)Plan and paid to the participant if required for certain emergencies. Under certain specified circumstances, theemployee 401(k) Plan allows loans to be drawn on a participant’s account. The participant is immediatelyfully vested with respect to the contributions attributable to reductions in pay; all other contributions becomefully vested over a three-year period of continuous service for the employee 401(k) Plan and after six years ofcontinuous service for the Funded Retirement Plan.

Deferred Compensation Arrangements — During fiscal 2002, the Company adopted a deferredcompensation plan titled the Brady Corporation Executive Deferred Compensation Plan (“Executive DeferredCompensation Plan”), under which executive officers, corporate staff officers and certain key managementemployees of the Company are permitted to defer portions of their salary and bonus into a plan account, thevalue of which is measured by the fair value of the underlying investments. The assets of the ExecutiveDeferred Compensation Plan

III-8


Table of Contents

are held in a Rabbi Trust and are invested by the trustee as directed by the participant in several investmentfunds as permitted by the Executive Deferred Compensation Plan. The investment funds available in theExecutive Deferred Compensation Plan include Brady Corporation Class A Nonvoting Common Stock andvarious mutual funds that are provided in the Employee 401(k) Plan.

At least one year prior to termination of employment, the executive must elect whether to receive hisaccount balance following termination of employment in a single lump sum payment or by means ofdistribution under an Annual Installment Method. If the executive does not submit an election form or has notsubmitted one timely, then payment shall be made each year for a period of ten years. The first payment mustbe one-tenth of the balance held; the second one-ninth; and so on, with the balance held in the Rabbi Trustreduced by each payment.

Effective January 1, 2005, the Executive Deferred Compensation Plan was amended and restated tocomply with the provisions of Section 409A of the Internal Revenue Code. Amounts deferred prior toJanuary 1, 2005 (which were fully vested under the terms of the plan), including past and future earningscredited thereon, will remain subject to the terms in place prior to January 1, 2005.

Perquisites:

Brady provides the named executive officers with the following perquisites that are not available to otheremployees:

• Annual allowance for financial and tax planning

• Eligible for annual physical

• Company car

• Long-term care insurance

• Personal liability insurance

• Club membership

Stock Ownership Guidelines

In order to encourage our executive officers and directors to acquire and retain ownership of a significantnumber of shares of the Company’s stock, stock ownership guidelines have been established. This supportsour belief that stock ownership better aligns the interests of our executives and directors with the Company’sshareholders.

The Board of Directors has established the following stock ownership guidelines for our named executiveofficers:

Frank M. Jaehnert 100,000 shares David Mathieson 30,000 shares David R. Hawke 50,000 shares Peter C. Sephton 20,000 shares Matt O. Williamson 20,000 shares

Each director is required to beneficially own 5,000 shares of Company stock.

Named executive officers have up to five years to achieve these ownership levels. If an executive doesnot the meet the ownership level at the end of the fifth year, the executive’s after-tax payout on any incentiveplans will be in Class A Nonvoting Common Stock to bring the executive up to the required level. TheCompensation Committee reviewed the actual stock ownership levels of each of the named executive officersin February 2007 and found that each executive exceeded the required level.

For purposes of determining whether an executive meets the required ownership level, Company stockowned outright, Company stock held in the Executive Deferred Compensation Plan and Company stockowned in the Employee 401(k) Plan is included. In addition, twenty percent of any vested stock options thatare “in the money” are included.

III-9


Table of Contents

Employment and Change of Control Agreements

In November 2004, the Board of Directors of Brady Corporation approved change of control agreementsfor certain executive officers of the Company including Mr. Mathieson, Mr. Sephton, and Mr. Williamson.The agreements call for payment of an amount equal to two times their annual base salary and two times theaverage bonus payment received in the two years immediately prior to the date the change of control occurs inthe event of termination or resignation upon a change of control. The agreements also call for reimbursementof any excise taxes imposed and up to $25,000 of attorney fees to enforce the executive’s rights under theagreement. Payments under the agreement will be spread over two years.

In May 2003, the Board approved a Change of Control Agreement for Mr. Jaehnert. The agreement callsfor payment of an amount equal to three times the annual salary and bonus for Mr. Jaehnert in the event oftermination or resignation upon a change of control. The agreement also calls for reimbursement of anyexcise taxes imposed and up to $25,000 of attorney fees to enforce the executive’s rights under the agreement.Payments under the agreement will be spread over three years.

In January 2001, the Board approved Change of Control Agreements for certain of its executive officers,including Mr. Hawke. The agreements call for payment of an amount equal to two times their annual salaryand bonus in the event of termination or resignation upon a change in control with payments spread over twoyears. The agreements also call for reimbursement of any excise taxes imposed and up to $25,000 of attorneyfees to enforce the executive’s rights under the agreements. See discussion of the retirement agreemententered into with Mr. Hawke on July 9, 2007, in the narrative following the Summary Compensation Table.

Compliance with Tax Regulations Regarding Executive Compensation

Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget Reconciliation Act of 1993,generally disallows a tax deduction to public companies for compensation over $1 million paid to thecorporation’s chief executive officer and the other named executive officers. Qualifying performance-basedcompensation will not be subject to the deduction limit if certain requirements are met. The Company’sexecutive compensation program, as currently constructed, is not likely to generate significant nondeductiblecompensation in excess of these limits. The Compensation Committee will continue to review these taxregulations as they apply to the Company’s executive compensation program. It is the CompensationCommittee’s intent to preserve the deductibility of executive compensation to the extent reasonablypracticable and to the extent consistent with its other compensation objectives.

Compensation Committee Interlocks and Insider Participation

During fiscal 2007, the Board’s Compensation Committee was composed of Messrs. Bemis, Buchanan,Jarc, Nei and Peirce and Ms. Bush. None of these persons has at any time been an employee of the Companyor any of its subsidiaries. There are no relationships among the Company’s executive officers, members of theCompensation Committee or entities whose executives serve on the Board that require disclosure underapplicable SEC regulations.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysiswith management; and based on the review and discussions, the Compensation Committee recommended tothe Board of Directors that the Compensation Discussion and Analysis be included in the Company’s annualreport on Form 10-K.

Gary E. Nei, ChairmanPatrick W. AllenderRichard A. BemisRobert C. BuchananMary K. BushFrank R. JarcRoger D. Peirce

III-10


Table of Contents

Summary Compensation Table

The following table sets forth compensation awarded to, earned by, or paid to the named executiveofficers, who were serving as executive officers as of July 31, 2007 for services rendered to the Company andits subsidiaries during the fiscal year ended July 31, 2007.

Non-Equity

Incentive

Plan All Other

Fiscal Salary OptionAwards Compensation Compensation Total

NameAndPrincipalPosition Year ($) ($)(1) ($)(2) ($)(3) ($)

F.M.Jaehnert

2007 638,987 860,224 430,677 146,592 2,076,480 President &Chief Executive Officer D. Mathieson 2007 293,046 438,301 144,413 68,349 944,109 Vice President &Chief Financial Officer

D.R.Hawke

2007 401,153 371,772 211,809 1,071,485 2,056,219 Executive Vice President P.C. Sephton(4) 2007 352,970 418,232 326,886 95,539 1,193,627 Vice President — BradyEurope

M. O. Williamson 2007 279,340 418,232 234,939 66,817 999,328

Vice President — BradyAmericas

(1) Represents the amounts expensed in fiscal 2007 relating to grants of performance-based stock optionsand time-based stock options. The Company accounts for stock-based compensation in accordance withSFAS No. 123(R), which requires it to recognize compensation expense for stock options granted toemployees and directors based on the estimated fair value of the awards at the time of grant. Theassumptions used to determine the value of the awards, including the use of the Black-Scholes methodof valuation by the Company, are discussed in Note 1 of the Notes to Consolidated Financial Statementsof the Company contained in Item 8 of this Form 10-K for the fiscal year ended July 31, 2007.

The actual value, if any, which an option holder will realize upon the exercise of an option will dependon the excess of the market value of the Company’s common stock over the exercise price on the datethe option is exercised, which cannot be forecasted with any accuracy.

(2) Reflects incentive plan compensation earned during the listed fiscal year, which was paid during thenext fiscal year.

(3) The amounts in this column for Messrs. Jaehnert, Mathieson, Hawke, and Williamson include: matchingcontributions to the Company’s Matched 401(k) Plan, Funded Retirement Plan and Restoration Plan, thecosts of group term life insurance for each named executive officer, use of a Company car andassociated expenses, the cost of long-term care insurance, the cost of personal liability insurance andother perquisites. The perquisites may include an annual allowance for financial and tax planning, thecost of an annual physical health exam, and club membership dues.

In addition to the amounts described in the table below, $975,857 is included in this column forMr. Hawke to account for the accrual of payments required under the agreement entered into on July 9,2007, between the Company and Mr. Hawke regarding the retirement from his current position. See thenarrative below for further explanation of the agreement.

The amounts in this column for Mr. Sephton include: matching contributions for the Brady U.K.Pension Plan, the cost of group term life insurance, use of a Company car and associated expenses andother perquisites as listed above.

Retirement GroupTerm Long-term Personal Plan Life Company Care Liability Fiscal Contributions Insurance Car Insurance Insurance Other Total Name Year ($) ($) ($) ($) ($) ($) ($)

F.M. Jaehnert 2007 104,230 4,259 26,935 1,683 7,885 1,600 146,592 D. Mathieson 2007 36,801 744 23,149 1,368 5,362 925 68,349 D.R. Hawke 2007 57,097 3,042 18,448 1,683 7,015 8,343 95,628 P.C. Sephton(4) 2007 56,475 2,349 36,715 — — — 95,539 M. O.

Williamson 2007 36,396 733 22,510 1,683 5,495 — 66,817


III-11


Table of Contents

(4) The amounts in this table for Mr. Sephton, who works and lives in the United Kingdom, were paid tohim in British Pounds. The amounts shown in U.S. dollars in the table above were converted fromBritish Pounds at the average exchange rate for fiscal 2007: $1 = £0.5135.

On July 9, 2007, the Company entered into a retirement agreement with Mr. Hawke. Pursuant to theretirement agreement, as of September 30, 2007, Mr. Hawke’s current position will be eliminated andMr. Hawke will assume the position of Chief Operating Officer of the Brady Foundation until his retirementfrom the Corporation on September 30, 2009. The retirement agreement provides that Mr. Hawke will receivehis current base salary, less required withholding, and customary fringe benefits from October 1, 2007through September 30, 2009. As of August 1, 2007, Mr. Hawke was no longer entitled to new grants underthe Company’s stock option plans and was no longer eligible to participate in the Company’s cash incentiveplan. However, Mr. Hawke retained all rights with respect to vesting and exercising of stock options grantedprior to that date and retained his current rights under the Company’s fiscal 2007 cash incentive plan. Duringthe period from August 1, 2007 through September 30, 2009, Mr. Hawke’s employment may only beterminated by the Company for cause, which is defined in the retirement agreement as misconduct or otherwrongdoing contrary to the interests of the Company.

Grants of Plan-Based Awards for 2007

The following table summarizes grants of plan-based awards made during fiscal 2007 to the namedexecutive officers.

All Other Option Awards; Grant

Estimated Future Payouts Estimated Future Payouts Number

of Exercise or Date Fair Compensation Under Non-Equity Incentive Under Equity Incentive Plan Securities BasePrice Value of Committee Plan Awards(1) Awards(2) Underlying of Option Option Grant Approval Threshold Target Maximum Threshold Target Maximum Options Awards Awards Name Date Date ($) ($) ($) (#) (#) (#) (#)(3) ($/Share)(4) ($)

F.M.Jaehnert

8/1/2006 7/24/2006 — 638,987 958,481 — 50,000 50,000 33.2250 629,000 11/30/2006 11/15/2006 50,000 38.1900 713,000 D. Mathieson 8/1/2006 7/24/2006 — 205,132 307,698 — 25,000 25,000 33.2250 314,500 11/30/2006 11/15/2006 25,000 38.1900 356,500

D.R.Hawke

8/1/2006 7/24/2006 — 300,865 451,298 — 25,000 25,000 33.2250 314,500 11/30/2006 11/15/2006 25,000 38.1900 356,500 P.C. Sephton 8/1/2006 7/24/2006 — 247,079 370,619 — 25,000 25,000 33.2250 314,500 11/30/2006 11/15/2006 25,000 38.1900 356,500

M.O.Williamson

8/1/2006 7/24/2006 — 195,538 293,307 — 25,000 25,000 33.2250 314,500 11/30/2006 11/15/2006 25,000 38.1900 356,500

(1) The awards were made under the Company’s annual cash incentive plan. The structure of the plan isdescribed in Compensation Discussion and Analysis above. Award levels are set prior to the beginningof the fiscal year and payouts can range from 0% to 150% of the target.

(2) The options granted equally vest upon meeting certain financial goals in fiscal 2007, 2008 and 2009.The structure of the grants is described in Compensation Discussion and Analysis above. The financialgoals in 2007 have not been met so one-third of the options have not vested and were cancelled. Theoptions have a term of ten years.

(3) The options granted become exercisable as follows: one-third of the shares on November 30, 2007,one-third of the shares on November 30, 2008 and one-third of the shares on November 30, 2009. Theseoptions have a term of ten years.

(4) The exercise price is the average of the highest and lowest sale prices of the Company’s Class ACommon Stock as reported by the New York Stock Exchange on the date of the grant. The closingprices of the Company’s Class A Common Stock as reported by the New York Stock Exchange on thedates of the grants were $33.16 per share on August 1, 2006 and $38.38 per share on November 30,2006, respectively.

III-12


Table of Contents

Outstanding Equity Awards at 2007 Fiscal Year End

Option Awards

(1)

Equity

Incentive Plan Awards: Number of Number of Number Securities Securities of Securities Underlying Underlying Underlying Unexercised Unexercised Unexercised Option Options Options Unearned Exercise Option Exercisable Unexercisable Options Price Expiration Name (#) (#) (#) ($) Date

F.M.Jaehnert

86,895 10.1719 8/3/2008 17,200 15.2813 10/14/2009 20,000 14.1575 10/24/2010 26,000 16.0000 10/16/2011 30,000 16.3875 11/14/2012 200,000(2) 13.3100 2/24/2013 72,000 17.3250 11/20/2013 40,000 20,000(3) 22.6325 8/2/2009 40,000 20,000(4) 28.8425 11/18/2014 20,000 40,000(5) 33.8900 8/1/2010 16,667 33,333(6) 37.8300 11/30/2015 33,333(7) 33.2250 8/1/2016 50,000(8) 38.1900 11/30/2016 D. Mathieson 2,600 16.0000 10/16/2011 9,000 16.3875 11/14/2012 8,000 17.3250 11/20/2013 30,000 20.1450 12/15/2008 6,000 20.1450 12/15/2013 20,000 10,000(3) 22.6325 8/2/2009 20,000 10,000(4) 28.8425 11/18/2014 10,000 20,000(5) 33.8900 8/1/2010 8,333 16,667(6) 37.8300 11/30/2015 16,667(7) 33.2250 8/1/2016 25,000(8) 38.1900 11/30/2016

D.R.Hawke

30,000 17.0125 8/1/2008 40,000 17.3250 11/20/2013 20,000 10,000(4) 28.8425 11/18/2014 10,000 20,000(5) 33.8900 8/1/2010 8,333 16,667(6) 37.8300 11/30/2015 16,667(7) 33.2250 8/1/2016 25,000(8) 38.1900 11/30/2016 P.C. Sephton 7,000 14.1575 10/24/2010 8,000 16.0000 10/16/2011 10,000 16.3875 11/14/2012 14,000 17.0125 11/20/2013 20,000 10,000(3) 22.6325 8/2/2009 20,000 10,000(4) 28.8425 11/18/2014 10,000 20,000(5) 33.8900 8/1/2010 8,333 16,667(6) 37.8300 11/30/2015 16,667(7) 33.2250 8/1/2016 25,000(8) 38.1800 11/30/2016

M.O.Williamson

5,500 16.0000 10/16/2011 10,000 16.3875 11/14/2012 14,000 17.3250 11/20/2013 20,000 10,000(3) 22.6325 8/2/2009 20,000 10,000(4) 28.8425 11/18/2014 10,000 20,000(5) 33.8900 8/1/2010 8,333 16,667(6) 37.8300 11/30/2015 16,667(7) 33.2250 8/1/2016 25,000(8) 38.1900 11/30/2016


(2) All vest on February 24, 2008.

(3) All vest on August 2, 2007 as the performance criteria for fiscal 2007 consolidated net income of$90 million have been met.

(4) All vest on November 18, 2007.

III-13


Table of Contents

(5) One-half of the options vest on August 1, 2007 as the performance criteria for fiscal 2007 consolidatednet income of $100 million have been met and one-half of the options will vest on August 1, 2008 if theperformance criteria for fiscal 2008 consolidated net income are met.

(6) One-half of the options vest on November 30, 2007 and one-half of the options vest on November 30,2008.

(7) One-half of the options will vest on August 1, 2008 if the performance criteria for fiscal 2008consolidated net income are met and one-half of the options will vest on August 1, 2009 if theperformance criteria for fiscal 2009 consolidated net income are met.

(8) One-third of the options vest on November 30, 2007, one-third of the options vest on November 30,2008 and one-third of the options vest on November 30, 2009.

Option Exercises and Stock Vested for Fiscal 2007

The following table summarizes option exercises completed during fiscal 2007 to the named executiveofficers.

Option Awards Number of Shares Acquired on Value Realized Name Exercise (#) on Exercise ($)

F.M. Jaehnert 17,905 489,310 D. Mathieson None None D.R. Hawke 30,000 704,625 P.C. Sephton 46,000 998,540 M.O. Williamson 30,000 988,770

Non-Qualified Deferred Compensation for Fiscal 2007

The following table summarizes the activity within the Executive Deferred Compensation Plan and theBrady Restoration Plan during fiscal 2007 for the named executive officers.

Executive Registrant Aggregate Aggregate Aggregate Contributions in Contributions in Earnings in Withdrawals/ Balance at

Name Last Fiscal

Year ($) Last Fiscal

Year ($) Last Fiscal

Year ($) Distributions ($) Last Fiscal

Year ($)

F.M. Jaehnert 354,531 96,800 170,386 0 2,349,108 D. Mathieson 236,816 26,715 37,878 0 650,345 D.R. Hawke 529,511 46,934 466,728 0 5,074,098 P.C. Sephton 0 0 0 0 0 M.O. Williamson 66,439 25,070 35,794 0 519,176

See discussion of the Company’s nonqualified deferred compensation plan in the CompensationDiscussion and Analysis. The executive contribution amounts reported here are reported in the salary andnon-equity incentive plan compensation columns of the Summary Compensation Table.

Potential Payments Upon Termination or Change in Control

As described in the Employment and Change of Control Agreements section of the CompensationDiscussion and Analysis above, the Company has entered into change of control agreements with each of thenamed executive officers. The terms of the change of control agreement are triggered if within a 24 monthperiod beginning with the date a change of control occurs, (i) the executive’s employment with the Companyis involuntarily terminated other than by reason of death, disability or cause or (ii) the executive’semployment with the Company is voluntarily terminated by the executive subsequent to (a) any reduction inthe total of the executive’s annual base salary, exclusive of fringe benefits, and the executive’s target bonus incomparison with the executive’s annual base salary and target bonus immediately prior to the date the changeof control occurs, (b) a significant diminution in the responsibilities or authority of the executive incomparison with the executive’s responsibility and authority immediately prior to the date the change ofcontrol occurs, or (c) the imposition of a requirement by the Company that the executive relocate to aprincipal work location more than 50 miles from the executive’s principal work location immediately prior tothe date the change of control occurs.

III-14


Table of Contents

Following termination due to a change in control, the executive shall be paid a multiplier of his annualbase salary in effect immediately prior to the date the change of control occurs, plus a multiplier of hisaverage bonus payment received over either a two or three-year period, depending on the terms of theagreement, prior to the date the change of control occurs. The Company will also reimburse the executive forany excise tax incurred by the executive as a result of Section 280(G) of the Internal Revenue Code. TheCompany will also reimburse a maximum of $25,000 of legal fees incurred by the executive in order toenforce the change of control agreement, in which the executive prevails.

The following information and tables set forth the amount of payments to each named executive officerin the event of termination of employment as a result of a change of control. No other employmentagreements have been entered into between the Company and any of the named executive officers, with theexception of the retirement agreement entered into with Mr. Hawke discussed in the narrative following theSummary Compensation Table.

Assumptions and General Principles. The following assumptions and general principles apply withrespect to the tables that follow in this section.

• The amounts shown in the tables assume that each named executive officer terminated employment onJuly 31, 2007. Accordingly, the tables reflect amounts earned as of July 31, 2007 and include estimatesof amounts that would be paid to the named executive officer upon the occurrence of a change incontrol. The actual amounts that would be paid to a named executive officer can only be determined atthe time of termination.

• The tables below include amounts the Company is obligated to pay the named executive officer as aresult of the executed change in control agreement. The tables do not include benefits that are paidgenerally to all salaried employees or a broad group of salaried employees. Therefore, the namedexecutive officers would receive benefits in addition to those set forth in the tables.

• A named executive officer is entitled to receive base salary earned during his term of employmentregardless of the manner in which the named executive officer’s employment is terminated. As such,this amount is not shown in the tables.

Frank M. Jaehnert

The following table shows the amount payable assuming that the terms of the change of controlagreement were triggered on July 31, 2007 and the named executive officer had to legally enforce the termsof the agreement.

Stock Option Excise Tax Legal Fee

BaseSalary($)(1) Bonus ($)(2)

Acceleration Gain$(3) Reimbursement ($)

Reimbursement($)(4) Total ($)

1,950,000 2,394,010 4,808,931 929,691 25,000 10,107,632

(1) Represents three times the base salary in effect at July 31, 2007.

(2) Represents three times the average bonus payment received in the last three fiscal years ended July 31.

(3) Represents the difference between the closing market price of $34.99 and the exercise price on 313,333unvested stock options in-the-money that would vest due to the change in control.

(4) Represents the maximum reimbursement of legal fees allowed.

David Mathieson






600,000 527,608 236,467 248,422 25,000 1,637,497

(1) Represents two times the base salary in effect at July 31, 2007.

(2) Represents two times the average bonus payment received in the last two fiscal years ended July 31.



III-15


Table of Contents

David R. Hawke


Stock Option Legal Fee


Acceleration Gain$(3)


810,000 782,310 112,890 25,000 1,730,200





Peter C. Sephton






751,581 569,880 236,465 241,139 25,000 1,824,065

(1) Represents two times the base salary in effect at July 31, 2007. As Mr. Sephton works and lives in theUnited Kingdom, his base salary is paid to him in British Pounds. The amount shown in U.S. dollarswas converted from British Pounds at the July month-end exchange rate: $1 = £0.4923.




Matt O. Williamson


Stock Option Legal Fee


Acceleration Gain$(3)


570,000 507,068 236,465 25,000 1,338,533





Compensation of Directors

To ensure competitive compensation for the directors, surveys prepared by various consulting firms andthe National Association of Corporate Directors are reviewed. Directors who are employees of the Companyreceive no additional compensation for service on the Board or on any committee of the Board. EffectiveDecember 1, 2006, directors who were not also employees of the Company received an annual retainer of$35,000 plus $6,000 for each committee they chaired ($10,000 for the audit committee chair) and $1,500 plusexpenses for each meeting of the Board or any committee thereof, which they attended and were a member or$1,000 for single issue telephonic committee meetings of the Board. Directors also received $1,000 for eachmeeting they attended of any committee for which they were not a member.

III-16


Table of Contents

Directors are also granted 6,000 time-based stock options in November of each year while they areserving on the Board. Upon election to the Board, a director is granted 10,000 time-based stock options. Thegrant price is the fair market value of the stock on the grant date and is calculated by taking the average of thehigh and low stock price on that date. The options vest one-third each year for the first three years and have aten year life.

Directors are also eligible to defer portions of their fees into the Brady Corporation Director DeferredCompensation Plan (“Director Deferred Compensation Plan”), the value of which is measured by the fairvalue of the underlying investments. The assets of the Director Deferred Compensation Plan are held in aRabbi Trust and are invested by the trustee as directed by the participant in several investment funds aspermitted by the Director Deferred Compensation Plan. The investment funds available in the DirectorDeferred Compensation Plan include Brady Corporation Class A Nonvoting Common Stock and variousmutual funds that are provided in the Employee 401(k) Plan.

At least one year prior to termination from the Board, the director must elect whether to receive his/heraccount balance following termination in a single lump sum payment or by means of distribution under anAnnual Installment Method. If the director does not submit an election form or has not submitted one timely,then payment shall be made each year for a period of ten years. The first payment must be one-tenth of thebalance held; the second one-ninth; and so on, with the balance held in the Trust reduced by each payment.

Director Compensation Table

Fees Earned or Paid in Option Name Cash ($) Awards ($)(1) Total ($)

Elizabeth Pungello 67,833 52,667 120,500 Peter J. Lettenberger 93,000 51,047 144,047 Robert C. Buchanan 83,500 51,047 134,547 Roger D. Peirce 94,750 51,047 145,797 Richard A. Bemis 63,333 51,047 114,380 Frank W. Harris 65,250 51,047 116,297 Gary E. Nei 70,750 51,047 121,797 Mary K. Bush 61,583 51,047 112,630 Frank R. Jarc 88,750 51,047 139,797 Chan W. Galbato 49,750 31,867 81,617

(1) Represents the amounts expensed in fiscal 2007 relating to grants of stock options. The Companyaccounts for stock-based compensation in accordance with SFAS No. 123(R), which requires it torecognize compensation expense for stock options granted to employees and directors based on theestimated fair value of the awards at the time of grant. The assumptions used to determine the value ofthe awards, including the use of the Black-Scholes method of valuation by the Company, are discussedin Note 1 of the Notes to Consolidated Financial Statements of the Company contained in Item 8 of thisForm 10-K for the fiscal year ended July 31, 2007. The grant date fair value of options granted in fiscal2007 for each director was $86,040 for Ms. Pungello, Mr. Lettenberger, Mr. Buchanan, Mr. Peirce,Mr. Bemis, Mr. Harris, Mr. Nei, Ms. Bush and Mr. Jarc and $143,400 for Mr. Galbato.

The actual value, if any, which an option holder will realize upon the exercise of an option will dependon the excess of the market value of the Company’s common stock over the exercise price on the datethe option is exercised, which cannot be forecasted with any accuracy.

Outstanding option awards at July 31, 2007 for each director include the following: Ms. Pungello,24,000 shares; Mr. Lettenberger, 21,000 shares; Mr. Buchanan, 22,000 shares; Mr. Peirce,35,000 shares; Mr. Bemis, 37,000 shares; Mr. Harris, 33,000 shares; Mr. Nei, 34,334 shares; Ms. Bush,27,000 shares; Mr. Jarc, 36,000 shares; and Mr. Galbato, 10,000 shares.

III-17


Table of Contents

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters

(a) Security Ownership of Certain Beneficial Owners

The following table sets forth the current beneficial ownership of shareholders who are known by theCompany to own more than five percent (5%) of any class of the Company’s voting shares on August 15,2007. As of that date, nearly all of the voting stock of the Company was held by two trusts controlled bydirect descendants of the Company’s founder, William H. Brady, as follows:

Amount of Beneficial Percent of

TitleofClass

Nameand

Addressof

BeneficialOwner Ownership Ownership(2)

Class B Common Stock Brady Corporation Class B Common StockTrust(1)

1,769,304

50%

c/o Elizabeth P. Pungello2002 S. Hawick Ct.Chapel Hill, NC 27516

William H. Brady III Revocable Trust of 2003(3) 1,769,304 50%

c/o William H. Brady III249 Rosemont Ave.Pasadena, CA 91103

(1) The trustee is Elizabeth P. Pungello, who has sole voting and dispositive power and who is theremainder beneficiary. Elizabeth Pungello is the great-granddaughter of William H. Brady and currentlyserves on the Company’s Board of Directors.

(2) An additional 20 shares are owned by a third trust with different trustees.

(3) William H. Brady III is special trustee of this trust and has sole voting and dispositive powers withrespect to these shares. William H. Brady III is the grandson of William H. Brady.

III-18


Table of Contents

(b) Security Ownership of Management

The following table sets forth the current beneficial ownership of each class of equity securities of theCompany by each Director or Nominee and by all Directors and Officers of the Company as a group as ofAugust 15, 2007. Unless otherwise noted, the address for each of the listed persons is c/o Brady Corporation,6555 West Good Hope Road, Milwaukee, Wisconsin 53223. Except as otherwise indicated, all shares areowned directly.

Amount of

Beneficial Percent

of

TitleofClass

NameofBeneficialOwner&NatureofBeneficialOwnership Ownership(7) Ownership

Class A Common Stock Elizabeth P. Pungello(1) 2,528,805 5.0% Frank M. Jaehnert(2) 377,557 0.7 Thomas J. Felmer 151,071 0.3 David R. Hawke 140,443 0.3 Allan J. Klotsche 127,181 0.3 David Mathieson 119,338 0.2 Michael O. Oliver 99,303 0.2 Peter C. Sephton 97,733 0.2 Matthew O. Williamson 87,833 0.2 Roger D. Peirce 62,199 0.1 Conrad G. Goodkind 45,716 0.1 Richard A. Bemis 43,000 0.1 Frank W. Harris 40,329 0.1 Gary E. Nei(3) 29,665 0.1 Robert C. Buchanan(4) 26,234 * Frank R. Jarc 19,000 * Barbara Bolens 18,433 * Mary K. Bush 15,000 * Peter J. Lettenberger 12,625 * Chan W. Galbato 0 * Robert L. Tatterson 0 * Patrick W. Allender(5) 0 * All Officers and Directors as a Group (22 persons)(6) 8.0% Class B Common Stock Elizabeth P. Pungello(1) 1,769,304 50.0%

* Indicates less than one-tenth of one percent.

(1) Ms. Pungello’s holdings of Class A Common Stock include 300,000 shares held jointly with her spouseand 2,216,805 shares owned by trusts for which she is a trustee and has either sole or joint dispositiveand voting authority. Ms. Pungello’s holdings of Class B Common Stock include 1,769,304 sharesowned by a trust over which she has sole dispositive and voting authority.

(2) Of the amount reported, Mr. Jaehnert’s spouse owns 5,446 shares of Class A Common Stock directly.

(3) Of the amount reported, Mr. Nei owns 7,331 shares of Class A Common Stock directly (with respect towhich he shares voting and investment power with his spouse).

(4) Of the amount reported, Mr. Buchanan owns 14,534 shares as co-trustee of three separate trusts.

(5) Mr. Allender was elected to the Board of Directors in September 2007 and owned no shares of Class ACommon Stock as of the reporting date.

(6) The amount shown for all officers and directors individually and as a group (22 persons) includesoptions to acquire a total of 1,313,021 shares of Class A Common Stock, which are currentlyexercisable or will be exercisable within 60 days of August 15, 2007, including the following: Ms.Pungello, 12,000 shares; Mr. Jaehnert, 368,762 shares; Mr. Felmer, 150,333 shares; Mr. Hawke,108,333 shares; Mr. Klotsche,

III-19


Table of Contents

125,167 shares; Mr. Mathieson, 113,933 shares; Mr. Oliver, 87,093 shares; Mr. Sephton, 97,333 shares;Mr. Williamson, 87,833 shares; Mr. Peirce, 23,000 shares; Mr. Goodkind, 0 shares; Mr. Bemis,25,000 shares; Mr. Harris, 21,000 shares; Mr. Nei, 22,334 shares; Mr. Buchanan, 10,000 shares; Mr. Jarc,19,000 shares; Ms. Bolens, 17,900 shares; Ms. Bush, 15,000 shares; Mr. Lettenberger, 9,000 shares;Mr. Galbato, 0 shares; Mr. Tatterson, 0 shares; Mr. Allender, 0 shares. It does not include other options forClass A Common Stock which have been granted at later dates and are not exercisable within 60 days ofAugust 15, 2007.

(7) In addition to the shares shown in this table, the officers and directors as a group owned the equivalentof 493,731 shares of the Company’s Class A Common Stock in its deferred compensation plans.

(c) Changes in Control

No arrangements are known to the Company, which may, at a subsequent date, result in a change incontrol of the Company.

(d) Equity Compensation Plan Information

Number of securities

remaining available

for Number of securities future issuance under to be issued upon Weighted-average equity compensation exercise of exercise price of plans (excluding

outstanding options, outstanding

options, securities reflected in

warrants and rights warrants and

rights column (a)) PlanCategory (a) (b) (c)

Equity compensation plans approved bysecurity holders 4,182,739 $ 26.36 1,987,500

Equity compensation plans not approvedby security holders None None None

Total 4,182,739 $ 26.36 1,987,500

The Company’s Nonqualified Stock Option Plans allow the granting of stock options to various officers,directors and other employees of the Company at prices equal to fair market value at the date of grant. TheCompany has reserved 300,000 and 2,000,000 shares of Class A Nonvoting Common Stock for issuanceunder the 2005 and 2006 Plans, respectively. Generally, options will not be exercisable until one year after thedate of grant, and will be exercisable thereafter, to the extent of one-third per year and have a maximum termof ten years. In August 2003, 2004, 2005, 2006, and 2007, certain executives and key management employeeswere issued stock options that vest upon meeting certain financial performance conditions in addition to thevesting schedule described above. The options granted in 2003, 2004 and 2005 have a maximum term of fiveyears and the options granted in 2006 and 2007 have a maximum term of ten years. All grants under theOption Plans are at market price on the date of the grant.

Item 13. Certain Relationships and Related Transactions

Conrad G. Goodkind serves as the Secretary and a Director of the Company. He is a partner of Quarles &Brady LLP, which provides legal services to the Company.

III-20


Table of Contents

Item 14. Principal Accounting Fees and Services

The following table presents the aggregate fees incurred for professional services by Deloitte & ToucheLLP and Deloitte Tax LLP during the years ended July 31, 2007 and 2006. Other than as set forth below, noprofessional services were rendered or fees billed by Deloitte & Touche LLP or Deloitte Tax LLP during theyears ended July 31, 2007 and 2006.

2007 2006 (Dollars in thousands)

Audit, audit-related and tax compliance Audit fees(1) $ 2,014 $ 1,495 Audit-related fees(2) 60 68 Tax fees — compliance 600 511

Subtotal audit, audit-related and tax compliance fees 2,674 2,074 Non-audit related

Tax fees — planning and advice 1,699 1,336 Other fees(3) 195 103

Subtotal non-audit related fees 1,894 1,439

Total fees $ 4,568 $ 3,513

(1) Audit fees consist of professional services rendered for the audit of the Company’s annual financialstatements, attestation of management’s assessment of internal control, reviews of the quarterly financialstatements and statutory reporting compliance.

(2) Audit-related fees include fees related to due diligence and employee benefit plan audits.

(3) All other fees include fees related to expatriate activities.

2007 2006

Ratio of Tax Planning and Advice Fees and All Other Fees to Audit Fees,Audit-Related Fees and Tax Compliance Fees .7 to 1 .7 to 1

Pre-Approval Policy — The services performed by the Independent Registered Public Accounting Firm(“Independent Auditors”) in fiscal 2006 and 2007 were pre-approved in accordance with the pre-approvalpolicy and procedures adopted by the Audit Committee at its November 19, 2003 meeting. The policyrequires the Audit Committee to pre-approve the audit and non-audit services performed by the IndependentAuditors in order to assure that the provision of such services does not impair the auditor’s independence.Unless a type of service to be performed by the Independent Auditors has received general pre-approval, itwill require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approvedcost levels will require specific pre-approval by the Audit Committee.

III-21


Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules

Item 15 (a) — The following documents are filed as part of this report:

1) & 2) Consolidated Financial Statement Schedule —

Schedule II Valuation and Qualifying Accounts

All other schedules are omitted as they are not required, or the required information is shown inthe consolidated financial statements or notes thereto.

3) Exhibits — See Exhibit Index at page IV-2 of this Form 10-K.

IV-1


Table of Contents

EXHIBIT INDEX

Exhibit Number Description

3.1 Restated Articles of Incorporation of Brady Corporation(1) 3.2 By-laws of Brady Corporation, as amended(2) *10.1

Form of Brady Corporation (2004) Change of Control Agreement entered into with DavidMathieson, Peter Sephton, and Matthew Williamson(17)

*10.2 Brady Corporation BradyGold Plan, as amended(2) *10.3 Executive Additional Compensation Plan, as amended(2) *10.4 Executive Deferred Compensation Plan, as amended(21) *10.5 Directors’ Deferred Compensation Plan, as amended(21) *10.6 Brady Corporation 1989 Non-Qualified Stock Option Plan, as amended(9) *10.7 Brady Corporation 2004 Omnibus Incentive Stock Plan, as amended(9) *10.8

Form of Brady Corporation 2004 Nonqualified Stock Option Agreement under the 2004Omnibus Incentive Stock Plan, as amended(18)

10.9 Brady Corporation Automatic Dividend Reinvestment Plan(4) *10.10 Brady Corporation 2005 Nonqualified Plan for Non-employee Directors, as amended(11) *10.11

Forms of Nonqualified Stock Option Agreements under 2005 Non-qualified Plan forNon-employee Directors, as amended(11)

*10.12 Brady Corporation 1997 Omnibus Incentive Stock Plan, as amended(9) *10.13 Brady Corporation 1997 Nonqualified Stock Option Plan for Non-Employee Directors(7) 10.14 Revolving Credit Facility Credit Agreement(19) *10.15 Brady Corporation 2006 Omnibus Incentive Stock Plan(20) *10.16 Brady Corporation Incentive Compensation Plan for Elected Corporate Officers(20) *10.17

Change of Control Agreement dated January 5, 2001, between Brady Corporation and David R.Hawke(10)

*10.18

Complete and Permanent Release and Retirement Agreement, dated July 9, 2007, betweenBrady Corporation and David R. Hawke

*10.23

Restricted Stock Agreement dated August 1, 1997, between Brady Corporation and David R.Hawke(8)

*10.24

Amendment to Change of Control Agreement dated May 20, 2003, between Brady Corporationand Frank M. Jaehnert(14)

*10.25 Restated Brady Corporation Restoration Plan(5) *10.26 Brady Corporation 2001 Omnibus Incentive Stock Plan, as amended(9) 10.27 Revolving Credit Facility Credit Agreement (Replaced by Exhibit 10.14)(12) 10.28 First Amendment to Credit Agreement (Replaced by Exhibit 10.14)(6) *10.29 Brady Corporation 2003 Omnibus Incentive Stock Plan, as amended(9) *10.30

Restricted Stock Agreement dated June 18, 2003, between Brady Corporation and David R.Hawke(16)

10.34 Brady Note Purchase Agreement dated June 28, 2004(15) 10.35 First Supplement to Note Purchase Agreement, dated February 14, 2006(13) 10.36 Second Supplement to Note Purchase Agreement, dated March 23, 2007(5) 21 Subsidiaries of Brady Corporation 23 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm 31.1 Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert 31.2 Rule 13a-14(a)/15d-14(a) Certification of David Mathieson 32.1 Section 1350 Certification of Frank M. Jaehnert 32.2 Section 1350 Certification of David Mathieson

* Management contract or compensatory plan or arrangement

IV-2


Table of Contents

(1) Incorporated by reference to Registrant’s Registration Statement No. 333-04155 on Form S-3

(2) Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 15, 2006

(3) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter endedOctober 31, 2005

(4) Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year endedJuly 31, 1992

(5) Incorporated by reference to Registrant’s Current Report on Form 8-K filed March 26, 2007

(6) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter endedJanuary 31, 2006

(7) Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter endedApril 30, 1997




(11) Incorporated by reference to Registrant’s Current Report on Form 8-K filed December 4, 2006


(13) Incorporated by reference to Registrant’s Current Report on Form 8-K filed February 17, 2006


(15) Incorporated by reference to Registrant’s 8-K/A filed August 3, 2004


(17) Incorporated by reference to Registrant’s Current Report on Form 8-K filed November 24, 2004.



(20) Incorporated by reference to Registrant’s Current Report on Form 8-K filed November 20, 2006

(21) Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 17, 2007

IV-3


Table of Contents


SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Year ended July 31, Description 2007 2006 2005

(Dollars in thousands)

Valuation accounts deducted in balance sheet from assets to whichthey apply — Accounts receivable — allowance for losses: Balances at beginning of period $ 6,390 $ 3,726 $ 3,869 Additions — Charged to expense 3,287 1,152 1,216

Due to acquired businesses 660 2,861 111 Deductions — Bad debts written off, net of recoveries (1,228) (1,349) (1,470)

Balances at end of period $ 9,109 $ 6,390 $ 3,726

Inventory — reserve for slow-moving inventory: Balances at beginning of period $ 13,555 $ 8,573 $ 7,434 Additions — Charged to expense 2,542 2,441 298

Due to acquired businesses 1,976 2,541 841

Balances at end of period $ 18,073 $ 13,555 $ 8,573

IV-4


Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorizedthis 28th day of September 2007.

Brady Corporation

By: /s/ David MathiesonDavid Mathieson

Senior Vice President & Chief Financial Officer(Principal Accounting Officer)(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed belowby the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ F. M. Jaehnert

F. M. Jaehnert

President and Director(Principal Executive Officer)

September 28, 2007

/s/ P. J. Lettenberger

P. J. Lettenberger

Director

September 28, 2007

/s/ R. A. Bemis

R. A. Bemis

Director

September 28, 2007

/s/ F. W. Harris

F. W. Harris

Director

September 28, 2007

/s/ R. C. Buchanan

R. C. Buchanan

Director

September 28, 2007

/s/ R. D. Peirce

R. D. Peirce

Director

September 28, 2007

/s/ G. E. Nei

G. E. Nei

Director

September 28, 2007

/s/ M. K. Bush

M. K. Bush

Director

September 28, 2007

/s/ F. R. Jarc

F. R. Jarc

Director

September 28, 2007

/s/ E. P. Pungello

E. P. Pungello

Director

September 28, 2007

IV-5


Table of Contents

/s/ C. W. Galbato

C. W. Galbato

Director

September 28, 2007

/s/ C. G. Goodkind

C. G. Goodkind

Director

September 28, 2007

/s/ P. W. Allender

P. W. Allender

Director

September 28, 2007

IV-6


EXHIBIT 10.18

COMPLETE AND PERMANENT RELEASE AND RETIREMENT AGREEMENT Mr. David R. Hawke (“Mr. Hawke”) and Brady Corporation (“the Company”) hereby enter into this Complete and PermanentRelease and Retirement Agreement to resolve all matters relating to Mr. Hawke’s employment with and retirement from theCompany. Mr. Hawke and the Company hereby agree as follows: 1. Effective September 30, 2007, Mr. Hawke’s current position as Executive Vice President of Brady Corporation will beeliminated. As of that date, Mr. Hawke will remain an employee of Brady, but will assume the position of Chief Operating Officer ofthe Brady Foundation, and shall perform the customary duties associated with that position and other duties as may be assigned to himfrom time to time. Assuming Mr. Hawke accepts this Agreement and does not revoke it, the Company will pay Mr. Hawke his normalbase salary (less required withholding), and customary fringe benefits (except as noted below), from October 1, 2007 through hisretirement on September 30, 2009, as a transition payment. Mr. Hawke’s employment with the Company will irrevocably terminatethrough his retirement on September 30, 2009 (the “termination date”). During the period from August 1, 2007, throughSeptember 30, 2009, Mr. Hawke will not receive a new Company vehicle, but will be entitled to retain his current vehicle withoutcharge to him when the lease expires. If it expires prior to September 30, 2009, the Company will reimburse Mr. Hawke for any taxconsequences associated with the transfer of that vehicle to him. Mr. Hawke’s termination date shall be deemed to be the “QualifyingEvent” for insurance continuation purposes under state and federal law. As of August 1, 2007, Mr. Hawke shall no longer be entitledto participate in the Brady Corporation Non-Qualified Stock Option Agreement (“Stock Option Agreement”), but he shall have allrights, with respect to the vesting and exercising of stock options, as outlined in those


stock options agreements he has previously received. As of August 1, 2007, Mr. Hawke shall no longer be eligible to participate in anybonus plans, but he shall have all rights with respect to the Fiscal 2007 bonus plan. 2. Mr. Hawke acknowledges that the Company is under no pre-existing obligation to pay him any of the transition payments orbenefits described above, and that no amounts are due and owing Mr. Hawke other than vested benefits to which he is otherwiseentitled (“vested benefits”). The parties agree that the foregoing constitute all of the payments and benefits to be provided to Mr.Hawke under this Agreement, and that they are in full settlement of all payments and benefits, including but not limited to, claims forwages, vacation pay, sick pay, bonuses, commissions, relocation costs, severance payments, stock options, or any other compensation. 3. During the period August 1, 2007, through September 30, 2009, Mr. Hawke’s employment with Brady shall only be terminablefor cause, defined as misconduct or other wrongdoing by Mr. Hawke contrary to the interests of Brady. In the event he is terminatedfor cause, all compensation and benefits under this agreement shall cease. During the period from August 1, 2007 through September30, 2009, Mr. Hawke agrees to notify Brady of any alternative job opportunities that become available to him. In the event he acceptsfull-time employment with an alternative employer during that time, the termination date noted above shall be accelerated to the datehe commences such new employment, and he shall then be paid severance payments, at his normal base salary, from the date ofcommencement of such employment to September 30, 2009. However, coverage under any Brady tax qualified plan shall end as of thecommencement of his alternative employment. 4. Mr. Hawke agrees that his employment with the Company will irrevocably end as of his termination date, with no right ofre-employment with the Company.

-2-


5. In consideration of the payments and benefits described above, and to the fullest extent allowed by law, Mr. Hawke, for himself,his spouse, heirs, successors and assigns, hereby releases and forever discharges the Company, its owners, parents, successors,affiliates, directors, officers, employees and all other representatives, from any and all charges, claims, suits and expenses (includingattorneys’ fees and costs), whether known or unknown, including, but not limited to, claims of age or other discrimination, breach ofcontract, wrongful discharge, constructive discharge, claims under the Wisconsin Fair Employment Act, § 111.31, etseq. Wis. Stats.;Title VII of The Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, etseq.; the Age Discrimination in Employment Act, 29U.S.C. § 621 et. seq.; the common law of Wisconsin, or any other federal, state or local law relating to employment. This releaseincludes any and all matters in connection with or relating in any way to Mr. Hawke’s employment with the Company and hisretirement from the Company, provided, however, that nothing herein shall release, diminish, or otherwise affect Mr. Hawke’s vestedbenefits. 6. Mr. Hawke and the Company agree that this Complete and Permanent Release and Retirement Agreement shall not constitute anadmission by the Company that it has acted wrongfully with respect to Mr. Hawke or that it has discriminated against him or againstany other individual. 7. Except as permitted below, Mr. Hawke hereby agrees to keep the terms and existence of this Complete and Permanent Releaseand Retirement Agreement confidential, and he agrees that he shall neither directly nor indirectly disclose the terms of this Agreementto any other person or entity except to his attorneys, tax preparers or financial advisors, and immediate family members, but only onthe condition that they agree to abide by the terms of this confidentiality clause, unless compelled by law.

-3-


8. Mr. Hawke agrees that at no time will he make disparaging remarks about the Company, its products or practices including, butnot limited to, its personnel practices. Mr. Hawke and the Company specifically agree that the payments under paragraph 1 aboveshall be deemed to fully satisfy any obligation the Company may have to provide salary payments to Mr. Hawke under his January 24,2001 Confidential Information Agreement. 9. This Complete and Permanent Release and Retirement Agreement sets forth the entire agreement between the parties and fullysupersedes any and all prior agreements or understandings between Mr. Hawke and the Company, with the specific exception of theJanuary 24, 2001 Confidential Information Agreement which shall remain in full force and effect, except as modified by paragraph 8above and which shall survive Mr. Hawke’s termination of employment. Mr. Hawke acknowledges that he is hereby advised to seeklegal counsel before signing this Agreement, that he has twenty-one (21) days to consider this Agreement, that upon his acceptance hehas seven (7) days to revoke his acceptance, and that this Agreement will not become effective until that seven (7) day period hasexpired. Mr. Hawke agrees that he has read, understands and voluntarily accepts its terms. This Agreement is binding upon the parties,their successors and assigns. Date July 2, 2007 /s/ David R. Hawke David R. Hawke BRADY CORPORATION

Date July 9, 2007 By: /s/ Michael O. Oliver Its Authorized Representative

-4-


Exhibit 21SCHEDULE OF SUBSIDIARIES OF BRADY CORPORATION

Percentage of Voting State (Country) SecuritiesName of Company of Incorporation OwnedBrady Corporation Wisconsin ParentTricor Direct Inc. — Delaware 100%

Doing Business As: Seton Seton Name Plate Company D&G Sign and Label Co. Seton Identification Products

Worldmark of Wisconsin Inc. Delaware 100%Brady Investment Co. Nevada 100%EMED Co., Inc. New York 100%Stopware, Inc. California 100%Permar Sytems, Inc. — New York 100%

Doing Business As Electromark Henryc, Inc. (U.S.) New York 100%Oliver of New York (U.S.) New York 100%AIO Holding Inc. Delaware 100%

Doing Business As Personnel Concepts AIO Acquisition Inc. Delaware 100%TruMed Technologies, Inc. Minnesota 100%IDenticard Systems Worldwide, Inc. Pennsylvania 100%Brady Mexico Holding LLC Delaware 100%Brady People Identification LLC Wisconsin 100%Comprehensive Identification Products, Inc. Massachusetts 100%PV Acquisitions, LLC Delaware 100%Scafftag Inc. Texas 100%Sorbent Products Co. Inc. New Jersey 100%Global Sorbent Sales LLC New Jersey 100%Brady Precision Converting, LLC Wisconsin 100%Clement Communications, Inc. Pennsylvania 100%Visual Wear LLC Massachusetts 100%Brady International Sales, Inc. U.S. Virgin Islands 100%Brady International Co. Wisconsin 100%Brady Worldwide, Inc. Wisconsin 100%

Also Doing Business As: Varitronic Systems Teklynx International Temtec

Brady Australia Pty. Ltd. Australia 100%Seton Australia Pty. Ltd. Australia 100%Accidental Health & Safety Pty. Ltd. Australia 100%Trafalgar First Aid Pty. Ltd. Australia 100%Carroll Australasia Pty. Ltd. Australia 100%Scafftag Australia Pty. Ltd. Australia 100%Sorbent Products Company International BVBA Belgium 100%W.H. Brady, N.V. Belgium 100%W.H.B. do Brasil Ltda. Brazil 100%Tradex do Brasil Ltda. Brazil 100%


Percentage of Voting State (Country) SecuritiesName of Company of Incorporation OwnedAsterisco Artes Graficas Ltda Brazil 100%W.H.B. Identification Solutions, Inc. — Canada 100%

Doing Business As: Brady GrafTek Revere-Seton Seton

Identicam Systems Inc. Canada 100%BRC Financial Canada 100%Brady (Shanghai) International Trading Co., Ltd. China 100%Brady Technology (Wuxi) Co. Ltd. China 100%Brady (Beijing) Co. Ltd. China 100%Brady (Shenzhen) Co., Ltd. China 100%Brady (Dongguan) Co., Ltd. China 100%Suzhou Dicel EMC Co., Ltd. China 100%Tradex Converting (Langfang) Co., Ltd. China 100%Brady Technology (Suzhou) Co., Ltd. China 100%CIPI Xiamen, Ltd. China 100%PanYu Meixin Metal Company Ltd. China 100%Brady Holdings Danmark ApS Denmark 100%Brady A.S (Denmark) Denmark 100%Braton Europe S.A.R.L France 100%Braton Groupe S.A.R.L France 100%

Doing Business As: Brady Techniques Avancees Holman Periprint

Brady Group S.A.S France 100%Doing Business As:

Seton Signals & Lettrasoft

Brady Holding GmbH Germany 100%Brady GmbH Germany 100%

Doing Business As: Seton Balkhausen Brady ISST Soft & Etimark

Quo-Luck Company Limited Hong Kong 100%Bakee Metal Manufactory Company Limited Hong Kong 100%Brady Corporation Hong Kong Limited Hong Kong 100%Brady Company India Pte. Ltd. India 100%Brady Italia, SRL Italy 100%Modernotecnica SRL Italy 100%Nippon Brady K.K. Japan 100%Brady Luxembourg SARL Luxembourg 100%Brady Technology SDN, BHD Malaysia 100%W. H. Brady S. de R.L. de C.V. Mexico 100%Brady Servicios, S. de R.L. de C.V. Mexico 100%Brady B.V. Netherlands 100%CIPI Europe, B.V. Netherlands 100%Brady A.S. (Norway) Norway 100%Brady Philippines Direct Marketing Inc. Philippines 100%Brady Corporation S.E.A. Pte. Ltd. Singapore 100%Brady Corporation Asia Pte. Ltd. Singapore 100%Brandon Precision Pte. Ltd. Singapore 100%Brady Technologies Asia Pte. Ltd. Singapore 100%


Percentage of Voting State (Country) SecuritiesName of Company of Incorporation OwnedBrady Asia Holding Pte. Ltd. Singapore 100%Brady Singapore Holdings Pte. Ltd. Singapore 100%ID Technologies Pte. Ltd. Singapore 100%ID Technologies (China) Pte. Ltd. Singapore 100%Brady S.R.O. Slovakia 100%Brady Korea Co., Ltd. South Korea 100%Brady Identification S.L. Spain 100%Brady AB Sweden 100%Brady Trading AB Sweden 100%Brady Sweden Holding AB Sweden 100%Brady Holding AB Sweden 100%Brady Converting AB Sweden 100%Tradex AB Sweden 100%Brady Holding Co. Ltd. Thailand 49%(1)Brady (Thailand) Co. Ltd. Thailand 100%Q.D.P.T. (Thailand) Co., Ltd. Thailand 100%Brady (Turkey) Ltd. Turkey 100%B.I. U.K. Limited United Kingdom 100%B.I. Financial Limited United Kingdom 100%Seton Limited United Kingdom 100%W.H. Brady Co. Ltd. United Kingdom 100%Brady Corporation Limited United Kingdom 100%Brady European Finance Limited United Kingdom 100%Brady European Holdings Limited United Kingdom 100%Cleere Advantage Limited United Kingdom 100%Focal Display Limited United Kingdom 100%Focal Signs Limited United Kingdom 100%S & L Signmaker Limited United Kingdom 100%Safety Shop Limited United Kingdom 100%Safety Shop Co. U.K. Limited United Kingdom 100%Signs & Labels Limited United Kingdom 100%Southern Signs Systems Limited United Kingdom 100%Esot Limited United Kingdom 100%Scafftag Limited United Kingdom 100%Safetrak Limited United Kingdom 100%Scafftag USA Limited United Kingdom 100%Pure Vantage United Kingdom 100%Rapid Update United Kingdom 100%

(1) Brady Corporation owns 49% of the outstanding shares of Brady Holding Co. Ltd., but Brady Corporation maintains controllingvoting rights. The 51% owner holds preferred shares, which entitle it to one vote for every 20 shares. Brady Corporation holdscommon shares, which entitle it to one vote for every one share. The preferred shareholder’s share of the net income in BradyHolding Co. Ltd is limited to recovery of its initial investment.


Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements No. 333-110949, 333-99615, 333-38857, 333-38859,333-44505, 333-92417, 333-134503, 333-137686 and 333-141402 on Form S-8 and 333-128023 on Form S-3 of our reports datedSeptember 27, 2007, relating to the financial statements and financial statement schedule of Brady Corporation and management’sreport on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of BradyCorporation for the year ended July 31, 2007.

/s/ DELOITTE & TOUCHE LLPMilwaukee, WISeptember 28, 2007


EXHIBIT 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, Frank M. Jaehnert, certify that: (1) I have reviewed this annual report on Form 10-K of Brady Corporation; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis report; (4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.

/s/ FRANK M. JAEHNERT (Frank M. Jaehnert) President and Chief Executive Officer

Date: September 28, 2007


EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, David Mathieson, certify that: (1) I have reviewed this annual report on Form 10-K of Brady Corporation; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis report; (4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.

/s/ DAVID MATHIESON (David Mathieson)

Senior Vice President and Chief FinancialOfficer

Date: September 28, 2007


EXHIBIT 32.1

SECTION 1350 CERTIFICATION Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officerof Brady Corporation (the “Company”) certifies to his knowledge that:

(1) The Annual Report on Form 10-K of the Company for the year ended July 31, 2007 fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results ofoperations of the Company.

/s/ FRANK M. JAEHNERT (Frank M. Jaehnert) President and Chief Executive Officer

Date: September 28, 2007 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwiseadopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, hasbeen provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or itsstaff upon request.


EXHIBIT 32.2

SECTION 1350 CERTIFICATION Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officerof Brady Corporation (the “Company”) certifies to his knowledge that:

(1) The Annual Report on Form 10-K of the Company for the year ended July 31, 2007 fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results ofoperations of the Company.

/s/ DAVID MATHIESON (David Mathieson)

Senior Vice President and Chief FinancialOfficer

Date: September 28, 2007 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwiseadopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, hasbeen provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or itsstaff upon request.

_______________________________________________Created by 10KWizard www.10KWizard.com


http://www.10kwizard.com

FORM 10-K -...

Documents

Transcript of FORM 10-K -...